Fed finalizes rules requiring big bank capital buffers

The Federal Reserve finalized rules Monday that requires the nation’s biggest banks to hold much more capital to guard against collapse.

Under the new rules, regulators imposed an additional surcharge on the nation’s eight largest banks, requiring them to hold on to billions of dollars in additional capital to accommodate for their huge size and significant role in the financial sector.

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”This final rule will confront these firms with a choice: they must either hold substantially more capital, reducing the likelihood that they will fail, or else they must shrink their systemic footprint, reducing the harm that their failure would do to our financial system,” said Fed Chairwoman Janet Yellen in a statement.

The new requirement imposes a surcharge between 1 to 4.5 percent to each bank’s total risk-weighted assets, on top of the 7 percent capital buffer currently required by the international banking regulatory deal known as Basel III. The new surcharge will begin being phased in at the beginning of 2016. The new rules will not take full effect until 2019.

The eight firms currently subject to the surcharge are Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street, and Wells Fargo.

All eight banks are on track to meet the new requirements, although JPMorgan is currently $12.5 billion short. All told, the banks will need to hold roughly $200 billion in additional capital to comply with the new requirement.

The Fed first proposed rules outlining the surcharge at the end of 2014.