Banks Present Crisis Plan to Fed, WSJ Reports

Monday, 24 Jun 2013 07:27 AM

 

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U.S. banks have given a proposal to federal regulators on how to pay for restructuring the country's too-big-to-fail institutions in the event of a future crisis, The Wall Street Journal reported, citing people familiar with the conversations.

The Journal said the proposal, given to the U.S. Federal Reserve at a private meeting on May 22, is an effort by banks to pre-empt tougher rules from officials, who believe banks still could pose a threat to financial stability in a crisis.

According to the plan, the largest financial services holding companies would maintain a certain amount of debt and equity that would be used to prop up any failed bank subsidiary seized by regulators.

Some banks might even be forced to issue expensive long-term debt, according to the newspaper.

In the presentation, the banks said they each would agree to hold combined debt and equity equal to 14 percent of their risk-weighted assets, the Journal said.

For the six biggest U.S. banks that may have to hold an additional buffer of capital because of international guidelines, the total could be as high as 15 percent to 16.5 percent, the people told the Journal.

Currently, Wells Fargo has a ratio of existing debt and equity of 14 percent, JPMorgan Chase has 18.4 percent, while Bank of America and Citigroup have 20.2 percent and 22.1 percent each respectively, the Journal said, citing Goldman Sachs estimates.

The U.S. Federal Reserve could not immediately be reached for comment by Reuters outside of regular U.S. business hours.

Regulators have not yet responded to the bank's proposal and could reject it in favor of their own plan. However, they have favored banks issuing more debt because it can provide liquidity for a failing bank while government officials replace senior management and fix problems, the Journal said.

© 2014 Thomson/Reuters. All rights reserved.

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