U.S. Banks to Face $120 Billion Shortfall in Fed Crisis Plan

  • Wells Fargo, JPMorgan may need to add long-term debt
  • Fed’s rule broadly matches parts of global regulators’ plan

The largest U.S. banks would face a $120 billion total shortfall of long-term debt under a Federal Reserve proposal aimed at ensuring their failure wouldn’t hurt the broader financial system.

Banks such as Wells Fargo & Co. and JPMorgan Chase & Co. will be required to hold enough debt that could be converted into equity if they were to falter, according to a Fed rule that was approved by a unanimous vote on Friday. The Fed’s proposal, which applies to eight of the biggest U.S. banks, requires debt and a capital cushion equal to at least 16 percent of risk-weighted assets by 2019 and 18 percent by 2022.

The broad strokes of the proposal, including the lengthy phase-in period and the 18 percent target instead of what some bankers thought could be as high as 20 percent, are easier than many in the industry expected. Fed staffers presenting the proposal at Friday’s meeting said the requirement probably will be manageable for the banks.

Read on.

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