Six big US banks need to raise an additional US$120 billion, most likely in long-term debt, under a rule proposed Friday by the US Federal Reserve, Reuters reported.
The requirements are aimed at ensuring that some of the biggest and most interconnected banks — which include Goldman Sachs Group Inc., JPMorgan Chase & Co. and Wells Fargo & Co. — 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 US$120 billion shortfall by issuing debt, which is usually more cost-effective than issuing equity, according to Fed officials speaking at a background press briefing Friday.
The proposed rule, 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 overlap with existing rules.
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