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May 15, 2013

Fed Ready to Raise Capital Standards If TBTF Remains Unsolved

Top Federal Reserve Board officials appear to have reached a consensus on how to deal with the “too big to fail” dilemma: wait for the current reform process to play out, but be ready to significantly increase capital standards if the problem remains unsolved.

Fed Chairman Ben Bernanke became the most recent central banker to call for such an approach, saying in a speech to the Chicago Fed conference last week that tougher capital requirements, not size caps, were the solution to “too big to fail.”

“‘Rather than arbitrarily saying the banks can be no larger than such and such a size, for example, I would argue that what we need to do is make sure that larger institutions have to have more and better quality capital,’ said Bernanke.

Lawmakers are also focused on capital requirements as the solution. Sens. Sherrod Brown, D-Ohio, and David Vitter, R-La., introduced a bill last month that would require banks with more than $500 billion of assets to hold a 15% capital ratio, as well as scrap proposed Basel III standards and require bank subsidiaries to capitalize separately.”

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Read full American Banker article here

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