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BUSINESS A25
Saturday 31 October 2015
Fed looks at way to shift big-bank losses to investors
MARCY GORDON Federal Reserve Chair Janet Yellen speaks during a meeting of the Board of Governors of the bank fails, “they will be on
AP Business Writer Federal Reserve, Friday, Oct. 30, 2015, in Washington. the hook” and likely won’t
WASHINGTON (AP) — In recover the full amount
their latest bid to reduce Associated Press they put in, Ireland said.
the chances of future tax- Higher interest rates paid
payer bailouts, federal 2019, and the remainder new proposal “would sub- eight Wall Street mega- by banks on the debt they
regulators are proposing not until 2022. stantially reduce the risk to banks that became known issued beforehand would
that the eight biggest U.S. The new cushions would taxpayers and the threat to as “too big to fail” in Wash- compensate for the inves-
banks build new cushions come atop rules adopted financial stability stemming ington. tors’ risk.
against losses that would by the Fed in July for the from the failure of these The previously adopted The other banks subject to
shift the burden to inves- eight banks to shore up (banks),” Yellen said at the capital and liquidity rules the requirements are Gold-
tors. their financial bases with start of the meeting. are the “belt” designed to man Sachs, Wells Fargo,
The Federal Reserve’s pro- about $200 billion in addi- Stricter capital require- reduce the likelihood of Morgan Stanley, Bank of
posal put forward Friday tional capital — over and ments for banks were man- big banks failing, while the New York Mellon and State
means the mega-banks above capital require- dated by Congress after new proposal for transfer- Street Bank.
would have to bulk up their ments for the industry. And the financial crisis, which ring potential losses to in- In its action Friday, the Fed
capacity to absorb finan- they would be in addition struck in 2008 and set off vestors is the “suspenders” was putting forward its
cial shocks by issuing equi- to 2014 rules directing all the worst economic down- in case banks do fail, said piece of a plan proposed
ty or long-term debt equal large U.S. banks to keep turn since the Great De- Oliver Ireland, an attorney by international regula-
to prescribed portions of enough high-quality assets pression. Hundreds of U.S. specializing in banking law tors in November 2014 for
total bank assets. on hand to survive during a banks received taxpayer at Morrison & Foerster who “loss-absorbing capacity”
The idea is that the cost severe downturn. bailouts totaling hundreds was an associate general for the world’s 30 largest
of a huge bank’s failure Combined with the regula- of billions of dollars dur- counsel at the Fed. banks. Including the eight
would fall on investors in tors’ previous actions, the ing the crisis, including the Investors will know that if a U.S. banks, they are consid-
the bank’s equity or debt, ered so big and intercon-
not on taxpayers. nected that each could
The Fed governors led by threaten the financial sys-
Chair Janet Yellen voted tem if they collapsed.
5-0 at a public meeting U.S. regulators won the
to propose the so-called power under the 2010 fi-
“loss-absorbing capacity” nancial overhaul law to
requirements for the banks, seize and dismantle big
which include JPMorgan banks and financial firms
Chase, Citigroup and Bank that could topple and
of America. jeopardize the broader sys-
The eight banks would tem. The Fed sees a man-
have to issue a total of date for loss-absorbing ca-
about $120 billion in new pacity as a key to enabling
long-term debt to meet that process. It would put
the requirements of the long-term debt into a
proposal, the Fed staff es- bank’s holding company
timates. that could be converted
If formally adopted, to stock as an injection of
most of the requirements capital — instead of tax-
wouldn’t take effect until payer funds.q
U.S. stocks slip but finish month
with biggest gain in 4 years
MARLEY JAY care and telecommunica- positive territory in the ear- This July 16, 2013 file photo shows a Wall Street street sign out-
AP Markets Writer tions, also helped propel ly afternoon before end- side the New York Stock Exchange in New York.
The stock market drifted the market all the way back ing lower. The S&P 500 lost
lower Friday but finished to positive for the year after 10.05 points, or 0.5 percent, Associated Press
October with its biggest a swoon in August and a to 2,079.36. The Dow Jones
monthly gain in four years. rocky September. industrial average dipped day that economic growth quarter earnings wrapped
U.S. government economic The Standard & Poor’s 92.26 points, or 0.5 percent, slowed sharply in the sum- up Friday with big moves
data released Friday and 500 index has risen for five to 17,663.54. The Nasdaq mer, although most econo- for a slew of companies.
earlier this week suggests consecutive weeks and it composite index slid 20.53 mists think the economy Bond prices rose. The yield
the economy is still sluggish, ended October up 8.3 per- points, or 0.4 percent, to has improved this month. on the 10-year Treasury
stuck in a pattern of gradu- cent, its best month since 5,053.75. The busiest week of third- note fell to 2.14 percent. q
al but uneven growth it has October 2011. The index’s The Commerce Depart-
followed since the Great increase of 159 points was ment said Friday that con-
Recession. But the outlook the biggest in its 77-year his- sumer spending inched
for future growth improved tory. The next-best month up just 0.1 percent in Sep-
and fears waned that a was March 2000, the height tember, partly because
slowing Chinese economy of the dot-com bubble, consumers were spending
would send the U.S. econ- when it rose 132 points. less on gasoline as energy
omy into a tailspin. On Friday, stocks were prices fell. The gain was the
Strong corporate earnings largely flat through much smallest in eight months.
in some sectors, like health of the day, venturing into The department said Thurs-
