Fed close to new financial buffers for banks

· Economics

Source / Courtesy: Yahoo news

WASHINGTON (CNNMoney) — The Federal Reserve is expected this week to release a set of proposed rules detailing how much reserve capital big banks will need to keep on hand in the future.

Wall Street is watching the rulemaking closely. Higher capital cushions would directly impact banks’ ability to lend, make financial bets and profit off those loans or bets.

Tougher capital cushions are also a key step toward making banks safer and possibly averting future taxpayer bailouts.

The Fed could release proposed rules this week for some 31 banks with more than $50 billion in assets, sources familiar with the situation told CNNMoney.

The Fed’s draft rule would impact mega-banks like JP Morgan Chase (JPM, Fortune 500), Bank of America (BAC, Fortune 500) and Citibank (C, Fortune 500).

Over the past two decades, banks drastically increased the money they use for loans and making financial bets, compared to the deposits they took in. Such leveraging is often cited as one of the causes of the 2008 financial crisis.

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1 Comment

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  1. Zia H. Shah

    The central banks put the whole economy or segments of economy, meaning different industries, into inflationary and deflationary cycles. This means a deflationary cycle for the banking industry or the whole of economy.

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