With New Capital Rule, Fed Nudges Big Banks to Shrink
JPMorgan’s capital, calculated under the method that the new rule requires, currently amounts to $163 billion, which is equivalent to 10.1 percent of one measure of its assets.
The Fed officials said that the highest requirement under the proposed rule would lead to a bank having capital equivalent to 11.5 percent of its assets. Increasing JPMorgan’s ratio to that level would in theory require adding just over $20 billion in capital.
.. Under the Fed’s rule, a very large bank that operates in many countries and focuses on complex businesses that can be fragile during market routs would face the highest capital requirements. JPMorgan and Citigroup are examples of such banks.
.. Conversely, the proposal would be much more lenient for a bank that is in relatively stable and simple businesses and operates primarily in the United States. Wells Fargo, which has only a small presence on Wall Street, would fit that description.
.. Unlike the Basel rule, the Fed’s proposal takes direct aim at Wall Street firms that borrow large sums for short periods in the debt markets. This type of borrowing evaporated in the 2008 financial crisis, depriving large banks of the money they needed to keep going and prompting the Fed to bail out the banks with emergency loans.