The Federal Reserve is expected to embrace
new global framework that requires giant
financial institutions to hold extra
capital.
The central bank's decision accept the
rules laid out by regulators in Basel,
Switzerland, as part of a draft proposal
that could come before New Years is a
defeat for giant U.S. banks that argued
the guidelines needn't be so strict.
They contended the Basel approach could
prompt them to reduce lending and hurt
the economy.
At the same time, it is not clear whether
the bigger captial buffers will accomplish
what regulators set out to do in the Dodd
Frank financial overhaul and other recent
moves: end the "too big too fail" syndrome
that paved the way for the government
bailouts of the 2008-09 financial crisis.
While big US banks that are asked to
maintain higher cushions could be forced
to raise prices on certain transactions
to compete with rivals, they also could
benefit from lower funding costs if they
are perceived to be likely recipients of
government aid in a market shock.
Stay tuned...
Sheila McKinney
