WASHINGTON -- Top policymakers and lawmakers have increasingly acknowledged over the past year that despite a new law and numerous regulations enacted in the wake of the financial crisis, some banks remain "too big to fail" -- and a threat to the economy.
On Tuesday, the three federal agencies that regulate the nation's banks responded to those worries, and concerns over subsidies that could be provided -- and funded by taxpayers -- to shore up these critical institutions. The Federal Deposit Insurance Corporation, Federal Reserve and Office of the Comptroller of the Currency answered with a proposal for a much stricter cap on big banks' leverage than had been set as part of an international agreement on bank regulation known as the Basel III accords.
In turn, regulators estimate eight of the largest U.S. banks -- JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon and State Street -- may be forced to stump up some $89 billion in capital to back up their loans and securities, in order to guard against unforeseen losses.
The proposed limits on the targeted banks could affect their ability over the next few years to make dividend payments to shareholders, buy back stock or reward their executives with bonuses in the name of preserving financial stability.
Borrowing by the eight financial groups would be capped at 20 times their total assets, which includes some off-balance sheet commitments like unused credit card lines and derivatives contracts. Their subsidiary banks would have their leverage capped at roughly 17 times their assets.
The new limits are particularly more stringent because they expand the definition of assets used to calculate a bank's leverage, compelling banks to further reduce their borrowing or sell off assets in order