NEW YORK - The Federal Reserve and other leaders in government threaten to bring the economic recovery to a halt with new regulation. The Federal Reserve has been calling for a capital surcharge on the largest global banks, one which will include Bank of America and there could be up to 15 other large financial institutions.
It is important to note that before the financial crisis Citigroup and Bank of America had capital ratios under 4% and these are now being raised to 7% without this idea of having a capital surcharge. A required ratio of 9 to 10% would cripple all major U.S. financial institutions but it will also be of a large detriment to Main Street.
Bank of America, Wells Fargo and J.P Morgan have 2.3 trillion of loans currently, and the largest 15 financial institutions have loans around $8 trillion. By raising capital ratios the banks will over time be unable to make new loans. Just the three banks in the U.S. (JPM, BAC and WFC) would have to raise $150 billion of more capital just to make the same amount of loans as they currently do which is at depressed levels because of the recession. And where are these banks going to raise all of this capital? Investors won't give the banks capital because these loans won't be profitable. Banks are able to be profitable by using leverage by controlling the leverage to a detriment will cause the banks to lose investors.
Meaning loans will shrink by 30% or $1.7 trillion among just these three banks. Loans across the world will shrink by over $4 trillion and threaten economic recovery. "This is obviously terrible news for Main Street" said Andyraw Kibben CEO of The Markets Are Open. "If a bank has less money to loan only the highest quality borrowers will get loans. The lifeblood of the economy is consumers and business being able to use banks for credit and the Federal Reserve will be the reason for a deepening recession."
Jason Goldberg, a senior analyst at Barclays Capital Inc. said“It will certainly restrict lending and curb economic growth if true.The enhanced capital requirement implied by this methodology can range between about 20% to more than 100% over the Basel III requirements, depending on choices made among plausible assumptions,”
J.P Morgan chief Jamie Dimon retorted higher capital requirements “will have ramifications on what people pay for credit, what banks hold on balance sheets.”
Andyraw Kibbens finished "this is a potential doomsday regulation for the economy, hopefully they come to their senses and scrap this."
It is important to note that before the financial crisis Citigroup and Bank of America had capital ratios under 4% and these are now being raised to 7% without this idea of having a capital surcharge. A required ratio of 9 to 10% would cripple all major U.S. financial institutions but it will also be of a large detriment to Main Street.
Bank of America, Wells Fargo and J.P Morgan have 2.3 trillion of loans currently, and the largest 15 financial institutions have loans around $8 trillion. By raising capital ratios the banks will over time be unable to make new loans. Just the three banks in the U.S. (JPM, BAC and WFC) would have to raise $150 billion of more capital just to make the same amount of loans as they currently do which is at depressed levels because of the recession. And where are these banks going to raise all of this capital? Investors won't give the banks capital because these loans won't be profitable. Banks are able to be profitable by using leverage by controlling the leverage to a detriment will cause the banks to lose investors.
Meaning loans will shrink by 30% or $1.7 trillion among just these three banks. Loans across the world will shrink by over $4 trillion and threaten economic recovery. "This is obviously terrible news for Main Street" said Andyraw Kibben CEO of The Markets Are Open. "If a bank has less money to loan only the highest quality borrowers will get loans. The lifeblood of the economy is consumers and business being able to use banks for credit and the Federal Reserve will be the reason for a deepening recession."
Jason Goldberg, a senior analyst at Barclays Capital Inc. said“It will certainly restrict lending and curb economic growth if true.The enhanced capital requirement implied by this methodology can range between about 20% to more than 100% over the Basel III requirements, depending on choices made among plausible assumptions,”
J.P Morgan chief Jamie Dimon retorted higher capital requirements “will have ramifications on what people pay for credit, what banks hold on balance sheets.”
Andyraw Kibbens finished "this is a potential doomsday regulation for the economy, hopefully they come to their senses and scrap this."
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