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Fed moots risk-based surcharges

The US Federal Reserve proposed risk-based surcharges for the most important U.S. banks. These surcharges would require the eight U.S. banks with $50 billion or more in consolidated assets to maintain an additional capital supply based on the institution’s system importance. The framework for these charges would be phased in beginning January 2016 through January 2019. The Fed will now wait for comment on the proposal before officially codifying the rule. Janel Yellen, chairperson of the Fed, said the framework would provide incentives to these banking organizations to hold substantially increased levels of high-quality capital as a percentage of their risk-weighted assets. This, in turn, would encourage such firms to reduce their systemic footprint and lessen the threat that their failure could pose to overall financial stability, she said in a statement. The rule would see surcharges ranging from 1% to 4.5% based on banks’ use of short-term wholesale funding. The eight U.S. banks subject to the new proposal are JPMorgan, Bank of New York Mellon, Citigroup, Bank of America, Goldman Sachs, Morgan Stanley, State Street and Wells Fargo. JPMorgan will likely be the only bank that needs to raise more capital to comply with these surcharges, Fed officials indicated.

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