What's happening in the headlines can affect you as an investor. Here's what's going on, what you need to know, and what you can do.
The cold, hard facts
The Financial Times is reporting that the Federal Reserve has proposed new rules for the largest financial firms, requiring them to hold more capital in a move that mirrors proposals by a group of global banking regulators known as the Basel committee.
The biggest banks will be required to achieve a 9.5% ratio of core capital to risk-weighted assets by 2019 as part of the so-called Basel III reforms. The rules would apply to all U.S. banks with more than $50 billion in assets, but the highest capital ratios would be reserved for the biggest of the big banks.
What you can do
Your columnist has said before that the death of the financial crisis has been greatly exaggerated. In this case, that's a good thing. For how much devastation the big banks caused, they've gotten away with not much more than a swat on the nose from a rolled-up newspaper, i.e., the largely toothless Dodd-Frank law.
These proposed capital requirements, in line with what the rest of the world's doing a la Basel III, will go a long way toward making America's, and the world's, banking system safer and less likely to melt down. As the big banks have to divert revenue to meet these capital requirements, top and bottom lines will take a bit of hit, but this will be temporary. Once the money is there, it's there. And in the end, these banks will be more stable and, hence, even better investments.
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