Courtesy of Pam Martens.
The Federal Reserve Board yesterday announced that it had “approved a final rule to help ensure banks maintain strong capital positions,” but it was as clear as mud when or if the new rule would take effect and how it would lessen the risk of the too-big-to-fail banks and prevent another taxpayer bailout of Wall Street.
After years of stonewalling on higher capital rules for banks, there was the nagging suspicion that the Federal Reserve decided to talk the talk on tougher standards after the House Financial Services Committee held a hearing last Wednesday that delivered a devastating assessment of how dangerous the largest Wall Street banks remain to the U.S. economy.
Thomas Hoenig, former President of the Federal Reserve Bank of Kansas City and now Vice Chair of the FDIC, reflected the general mood at the hearing when he stated that the biggest banks are “woefully undercapitalized” and that we have a “very vulnerable financial system.” Hoenig strongly advocates the restoration of the Glass-Steagall Act which would force the separation of banks holding insured deposits from Wall Street brokerage firms and investment banks – an outcome fiercely opposed by most of the largest banks’ current management.
The press release from the Fed was almost as large, complex and opaque as the banks it supervises with approximately 700 unnecessary words. Adding to the confusion were more complicated and wordy statements from Fed Chair Ben Bernanke and Fed Board Governors Daniel Tarullo and Elizabeth Duke.
Distilling it all down to facts comprehensible to the human brain delivers the following:
The new rule includes a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5 percent; it also raises the minimum ratio of tier 1 capital to risk-weighted assets from 4 percent to 6 percent and includes a minimum leverage ratio of 4 percent for all banking organizations.
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