Tags: obama | bank | reserves

Obama Wants Banks to Keep Much Higher Reserves

Tuesday, 08 Sep 2009 11:01 AM

By Dan Weil

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The Obama administration wants banks to keep larger reserves of capital to prevent the institutions from falling back into crisis.

With the country’s biggest banks having recovered from the near meltdown of late last year, the White House is looking for long-term cures to avoid another catastrophe.

It has settled on the idea of larger capital requirements for banks, especially those considered too big to fail like Citigroup and Bank of America, The New York Times reports.

Bankers oppose the idea of stricter capital requirements because they diminish profits. But the issue has pushed to the center of discussions about how to safeguard the financial system from another implosion.

“Higher capital requirements impact the profitability of financial institutions,” Tim Brunne, a credit strategist at UniCredit, tells Bloomberg.

“It’s causing some uncertainty in the market.”

The White House wants to forge an international agreement on the issue and then put new capital guidelines in place after the Group of 20 summit meeting in Pittsburgh late this month, The Times reports.

The problem is that while capital increases would curb financial risk, they would also lessen banks’ capacity to provide loans. Experts agree that the current sluggish state of lending hampers economic recovery.

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