Major global banks deemed “too big to fail” will need to search through their pant pockets or under the sofa cushions to find $1.2 trillion in order to be safe from the next global financial meltdown, says G20 financial regulators.
New rules put forward by the Financial Stability Board (FSB) say that the likes of Wells Fargo, Goldman Sachs and JPMorgan Chase will be required to enhance their capital cushions to be prepared for the next international economic collapse. The loss-absorbing cash will be equal to 16 percent of a bank’s assets by the year 2019, which will then go up to 18 percent three years later.
The purpose of this move is to ensure that the folding of a bank won’t lead to dire economic conditions for a national or global economy. This is what took place close to a decade ago when Lehman Brothers shut their doors, which was one of the first scenes of the worst financial crisis since the Great Depression.
Mark Carney, the Bank of England (BOE) governor and head of the FSB, said in a statement that the new rules “minimizes impacts on financial stability, maintains the continuity of critical functions and avoids exposing public funds to loss.”
In addition to the aforementioned banks, the strict requirements will affect Bank of America, HSBC and Barclays. In fact, JPMorgan and Wells Fargo are two banks most vulnerable to a collapse in the system and will need to raise a total of $55 billion ($25 billion and $30 billion, respectively).
–AM
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