Federal Regulators Impose Stricter Capital Requirements on Big U.S. Banks

Federal regulators are directing the eight largest U.S. banks to hold capital at levels above industry requirements to cushion against unexpected losses and reduce the risk of future taxpayer bailouts. The U.S. Federal Reserve's action means the eight banks together will be required to shore up their financial bases with about $200 billion in additional capital. The requirements are aimed at encouraging the Wall Street megabanks to shrink and reduce the risk they pose to the financial system.

Key Takeaways:

• The eight largest U.S. banks, including JPMorgan Chase & Co., Citigroup Inc., and Bank of America, will be required to hold capital at levels above industry requirements to cushion against unexpected losses.
• The banks will collectively be required to shore up their financial bases with about $200 billion in additional capital.
• The requirements will be phased in from 2016 through 2018 and take full effect on January 1, 2019.
• JPMorgan Chase is the only bank that doesn't already meet the requirements and will need to add $12.5 billion in capital.
• The extra capital requirements will increase in proportion to how risky the regulators deem a bank to be, with a key factor being the bank's reliance on short-term funding markets.
• The government's 2008 financial crisis bailouts of the big Wall Street banks, as well as hundreds of smaller U.S. banks, led to the stricter capital requirements.
• The new Fed standards for supervision of General Electric Co.'s finance arm will be subject to rules similar to those governing big banks and will take effect by January 1, 2018.
• GE Capital Corp. was labeled as a potential threat to the financial system in 2015 and was required to increase its capital cushion and limit its use of borrowed money.
• The new standards may be temporary as GE plans to sell off GE Capital's businesses, which could remove the "systemically important" designation.

Statistics:

• $200 billion: The total amount of additional capital the eight largest U.S. banks will need to hold.
• 2016-2018: The time period during which the capital requirements will be phased in.
• 2019: The year by which the capital requirements will take full effect.
• $12.5 billion: The amount of capital JPMorgan Chase needs to add to meet the requirements.
• $139 billion: The amount of GE Capital's debt guaranteed by the government during the crisis.
• $51 billion: The amount of long-term debt issued by GE Capital with government backing.
• $17 billion: The amount of short-term debt issued by GE Capital with government backing.

Sources:

• Federal Reserve
• U.S. Congress
• Financial Stability Oversight Council
• General Electric Co.
• Treasury Department
• Federal Reserve Chair Janet Yellen
• Treasury Secretary Jacob Lew
• Associated Press