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 The requirements are aimed at ensuring that some of the biggest
and most interconnected banks, which include Goldman Sachs Group
Inc, <GS.N>, JPMorgan Chase & Co, <JPM.N>, and Wells Fargo & Co
<WFC.N>, can better withstand another crisis by turning some of
their debt, particularly debt issued by their holding companies,
into equity without disrupting markets or requiring a government
bailout.
The banks are expected to meet the $120 billion shortfall by issuing
debt, which is usually more cost-effective than issuing equity,
according to Federal Reserve officials speaking at a background
press briefing Friday. The rule proposed Friday, largely in line
with banks' expectations, concerns the lenders' total loss-absorbing
capacity.
It is one of a series of rules aimed at reducing risk in the banking
system by determining how much debt and equity banks should use to
fund themselves.
In a procedural vote, the Fed's governors approved a draft of the
proposal, meaning it will be submitted for public comment.
During a public meeting with Fed officials, one staffer who worked
on the rule said banks should have an easy time complying, because
many requirements overlapped with existing rules. Further, the bulk
of the debt requirements can be fulfilled by refinancing existing
debt, the staffer said.
Some requirements must be met by Jan. 1, 2019, while more-stringent
requirements must be met by Jan. 1, 2022.
The requirements are most stringent for JPMorgan, followed by
Citigroup Inc. <C.N> After that come Bank of America Corp, <BAC.N>
Goldman Sachs and Morgan Stanley, <MS.N> all of which have the same
requirement. Wells Fargo & Co's <WFC.N> requirement is the next
highest, followed by State Street Corp <STT.N> and finally Bank of
New York Mellon Corp. <BK.N>
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JPMorgan has more than $2 trillion in total assets, making it the
largest U.S. bank by that measure.
The officials declined to say which two banks already meet the
long-term debt requirements under Friday's proposal.
The rules also apply to U.S. operations of foreign globally
systemically important banks, establishing roughly parallel
requirements as those for U.S. banks, Fed officials said.
Also announced was a draft final rule establishing minimum margin
requirements for swaps that are not cleared through an exchange. The
rule is identical to one proposed by other regulators.
A Wells Fargo spokesman said in a statement the bank is reviewing
the proposal and it appears to be in line with expectations.
Representatives from the other banks either declined comment or were
not immediately available.
(Reporting by Dan Freed; Editing by Chizu Nomiyama, Dan Wilchins and
David Gregorio)
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