UPDATE: Fed Extends Comment Period For Dodd-Frank's Bank Rules
March 02 2012 - 2:39PM
Dow Jones News
Financial firms and others will get another month to comment on
a major provision of the Dodd-Frank financial overhaul law setting
out stricter capital, liquidity and other requirements for the
nation's biggest banks.
The Federal Reserve on Friday extended the public comment period
for enhanced prudential standards until April 30 from March 31.
The proposed rules would require the biggest U.S. banks to limit
their financial ties to one another, with the intent of preventing
the collapse of one big institution from triggering a larger,
cascading crisis.
The net credit exposures between any two of the nation's six
largest financial firms, including J.P. Morgan Chase & Co.
(JPM) and Goldman Sachs Group Inc. (GS), would be limited to 10% of
a company's regulatory capital, said the proposal that the Fed
unveiled to the industry late last year and published in
January.
"Due to the range and complexity of the issues addressed in the
rulemaking, the Board has determined that an extension...is
appropriate," the Fed said in a notice Friday.
In December, analysts said the new 10% limit for the biggest
firms was not anticipated by the industry and has the potential to
scale back the capital-markets businesses of large institutions.
Most other firms covered by the rule would be subject to a 25%
limit, as required by the 2010 Dodd-Frank law.
The 2008 financial crisis showed that links among major
institutions could destabilize the entire economy, as happened when
Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy and
the U.S. government had to prop up Lehman's rivals.
The stricter rules aim to reduce the ability of any single
financial giant to damage the financial system and the broader
economy, and is one of several ways Dodd-Frank attempts to end the
"too big to fail" phenomenon that led to huge taxpayer-funded
bailouts.
Broadly, the rules apply to all banks with at least $50 billion
in assets, as well as any nonbank financial firms, such as
insurance companies or asset managers, that regulators deem a large
enough threat to financial stability.
-By Eric Morath, Dow Jones Newswires; 202 862 9279;
eric.morath@dowjones.com
--Victoria McGrane and Dan Fitzpatrick contributed to this
article.
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