Fed has 8 biggest US banks shift loss burden to investors
WASHINGTON — The eight biggest U.S. banks will be required to build new cushions against losses that would shift the burden to investors. The action by the Federal Reserve was the latest bid by regulators to reduce the chances of future taxpayer bailouts.
The Fed governors led by Chair Janet Yellen voted 5-0 Thursday to lay down the new requirements. The mega-banks must bulk up their capacity to absorb financial shocks by issuing equity or long-term debt equal to certain portions of total bank assets. The idea is that the cost of a huge bank’s failure would fall on investors in the bank, not on taxpayers.
The Fed action comes as Washington braces for changes to the 2010 law that reined in Wall Street after the financial crisis and the Great Recession. President-elect Donald Trump urged during his campaign that the Dodd-Frank law be dismantled, and his transition team has set that as a goal. Republicans, who overwhelmingly opposed Dodd-Frank, will control the White House and Congress in January and see an opening to go after key parts of the law — such as the Consumer Financial Protection Bureau.
“Today we are putting into place one of the last critical safeguards that make up the core of our … reform efforts” following the financial crisis, Yellen said at the start of the meeting. “These banks must bear the costs their failure would impose on the financial system and the economy.”