Major Banks Facing $120 Billion Shortfall
Business + Economy

Major Banks Facing $120 Billion Shortfall

© Neil Hall / Reuters

Six of the eight globally systemically important U.S. banks need to raise an additional $120 billion to comply with a regulatory requirement proposed Friday by the Federal Reserve.

The requirements are aimed at ensuring the banks, which include Bank of America Corp. , Bank of New York Mellon Corp. , Citigroup Inc. , Goldman Sachs Group Inc. , JPMorgan Chase & Co. , Morgan Stanley , State Street Corp. and Wells Fargo & Co.are able to recapitalize without disrupting markets or requiring a government bailout.

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The banks are expected to meet the $120 billion shortfall by raising debt, as that will be more cost-effective than equity, according to Federal Reserve officials speaking at a background press briefing Friday. The rule proposed Friday, widely anticipated by the market, concerns banks' total loss-absorbing capacity. It is one of several rules aimed at reducing risk in the banking system.

"By making the failure of even the largest banks more manageable, the proposed regulation will be another important step in solving the too-big-to-fail problem," said Fed Governor Daniel Tarullo in a statement Friday.

The requirements are most stringent for JPMorgan, followed by Citigroup. After that come Bank of America, Goldman Sachs and Morgan Stanley, all of which have the same requirement. Wells Fargo's requirement is the next highest, followed by State Street and finally Bank of New York Mellon. JPMorgan has more than $2 trillion in total assets, making it the largest U.S. bank by that measure.

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The rules also apply to U.S. operations of foreign globally systemically important banks, establishing roughly parallel requirements as those for U.S. banks, Federal Reserve officials said.

The officials declined to say which two banks already meet the long term debt requirements under Friday's proposal.

Also announced Friday was a draft final rule establishing minimum margin requirements for swaps that are not cleared through an exchange. The rule is identical to one already proposed by other regulators.