Thread: Fed Reserve Wants Banks to Set Aside More Reserves...

'...The Federal Reserve wants US banks to set aside more money to guard against unexpected losses. Proposed rules would require all banks to hold at least 7 percent of their assets in capital reserves. That’s up from a minimum of just 2 percent currently required. The Fed’s new policy is seen as added insurance aimed at preventing a repeat of the 2008 financial crisis. Banks don’t like the idea one bit, and have lobbied vigorously against the proposals. They say setting aside so much money in reserve could limit what they could lend. The rules are open to comment until September. They will be made final after that...."....read

Banks Must Set Aside More Cash, Fed Says - ABC News


I don't think a 7% reserve is too much to ask of banks, especially the TBTF banks. It might make them more cautious if it's their own money at stake instead of other peoples. In fact, I think it should 10%.

Originally Posted by Moot

'...The Federal Reserve wants US banks to set aside more money to guard against unexpected losses. Proposed rules would require all banks to hold at least 7 percent of their assets in capital reserves. That’s up from a minimum of just 2 percent currently required. The Fed’s new policy is seen as added insurance aimed at preventing a repeat of the 2008 financial crisis. Banks don’t like the idea one bit, and have lobbied vigorously against the proposals. They say setting aside so much money in reserve could limit what they could lend. The rules are open to comment until September. They will be made final after that...."....read

Banks Must Set Aside More Cash, Fed Says - ABC News


I don't think a 7% reserve is too much to ask of banks, especially the TBTF banks. It might make them more cautious if it's their own money at stake instead of other peoples. In fact, I think it should 10%.

It will be closer to 10% for the largest banks as there is a surcharge for systemic risk.

While 2% was certainly too low not sure that 7 or 10% is where it needs to be. We seem to bounce from one extreme to another.

Also remember that this has nothing to do with having their own money at stake. That was in reference to making banks retain a portion of the mortgage loans they make. This is common equity that is being talked about.

Lastly, let's remember that we can't both demand higher reserve requirements along with asking banks to make more loans to riskier customers like small businesses or home buyers who can't afford to put up a downpayment of 20%. If I am not mistaken they use the term risk adjusted assets, so banks need to reserve more for certain loans.

The banks are lying about having limitations to lend. If they make a loan and need more reserves then all they have to do is go through the discount window. Good for the federal reserve for doing their job for once.

one solution would be to increase the percentage in relation to the size of the bank. small banks have to put aside less; TBTF banks put aside more.

Originally Posted by Helix

one solution would be to increase the percentage in relation to the size of the bank. small banks have to put aside less; TBTF banks put aside more.

That is exactly the proposal and the reason for the surcharge on systemically important banks.

Originally Posted by washunut

That is exactly the proposal and the reason for the surcharge on systemically important banks.

i read it as :

Proposed rules would require all banks to hold at least 7 percent of their assets in capital reserves.

if what you're saying is the case, then the article is misleading.

It should be 100%.

Originally Posted by Helix

i read it as :

if what you're saying is the case, then the article is misleading.

I do believe that it's going to require all banks to keep a reserve of 7%, as I heard about this issue briefly on news radio.

If washunut is right, it may be a case of all banks keeping 7% in reserves but TBTF banks must pay an additional surcharge. That's just a guess though.

I would like some kind of progressive reserve system in which the larger you are the more you must maintain in a reserve. That way it will be in the interests of these banks not to be too big to fail or take too much risks.

Originally Posted by Helix

i read it as :

if what you're saying is the case, then the article is misleading.

For the biggest banks there will be a surcharge, something between 1-3% still being decided.

Originally Posted by samsmart

I do believe that it's going to require all banks to keep a reserve of 7%, as I heard about this issue briefly on news radio.

If washunut is right, it may be a case of all banks keeping 7% in reserves but TBTF banks must pay an additional surcharge. That's just a guess though.

I would like some kind of progressive reserve system in which the larger you are the more you must maintain in a reserve. That way it will be in the interests of these banks not to be too big to fail or take too much risks.

It will also be in their interests to get somewhat smaller. Get rid of the less profitable stuff.