Boston, MA 09/04/2014 (wallstreetpr) – A few days ago Bank of America Corp (NYSE:BAC) had to pay the largest penalty of U.S. history in order to settle the claims that were put against it in relation with property mortgage that later led to global financial crisis. It looks like the government doesn’t want to repeat same mistake twice; hence, The Federal Reserve on Wednesday passed an amendment. According to it, all the financial institutions and banks that are into lending will have to keep minimum cash ready in their accounts in order to avoid financial crisis similar to year 2008. This rule is to be accepted by office of the Comptroller of the Currency and Federal Deposit Insurance Corp.
What’s the insights of the rule:
According to the new rule, all the financial institutions that have 10 billion in foreign exposure or $250 billion in assets should have enough cash and cash equivalent securities to handle their operations for a minimum of 30 days in case of a credit crisis. Those banks that are small in size and have more than or equal to $50 billion in assets will also have to follow the same rule, although they can have 30% lesser liquid assets in hand. There are around 15 large banks in US, which will have to follow this rule strictly. These banks include Citigroup Inc (NYSE:C), JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corp (NYSE:BAC). Other than 15 large size banks, U.S also have 20 small size banks which will be affected by this rule.
These requirements are based on the inputs given by international regulators in Basel, Switzerland, but way tougher than those norms. The biggest example of it can be the rule forces institutions. They are to be compliant by 2017 while the Basel deadline is in 2019. It narrows down the scope for liquid assets. In simple words, all the largest banks of the country will have to set aside around 2.5 trillion to meet the new rules suggested by the Federal Reserve.
