US Fed says banks to raise capital to survive financial crises
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Federal Reserve Vice Chair for Supervision Michael Barr says in a congressional hearing that the lack of capital liquidity and safeguards are the biggest reasons for the US financial crisis.
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The Federal Reserve building, center, rises high over the skyline of Richmond, Va., on Dec. 4, 2017 (AP Photo/Steve Helber, File)
Private banks in the US may need to raise capital to deal with increased numbers of defaults on loans, the Federal Reserve Vice Chair for Supervision, Michael Barr, said at a congressional hearing by the US House Financial Services Committee on Tuesday.
"The Federal Reserve generally does not require additional capital or liquidity beyond regulatory requirements for a bank with inadequate capital planning, liquidity risk management, or governance and controls. I believe that needs to change in appropriate cases," Barr told the committee.
Barr pointed to the need for larger capital requirements which would serve "as an important safeguard until risk controls improve, and they can focus management’s attention on the most critical issues."
Several US banks faced liquidity issues as customers rushed to withdraw their deposits as uncertainty around the stability of Western economies and currencies grows. The US Federal Reserve rushed to bail out or sell the troubled financial institutions.
Banks with assets totaling $50 billion or more will have to come up with $16 billion to pay for the bill of failed banks, the Federal Deposit Insurance Corporation (FDIC) stated.
Theoretically, the ruling applies to almost every US bank, however, the banks that hold $50 billion in assets are expected to pay for 95% of the total fee while banks with assets less than $5 billion will not take part in the process, the FDIC underscored.
Barr's testimony came a day after Federal Reserve System's branch in New York revealed that Americans were increasingly defaulting on credit card and car loans in comparison to the period COVID-19 US central bank. Currently, the US consumer debt has surpassed $17 trillion marking the highest ever amount in the country's history.
The Fed pointed to the lack of safeguards as the main culprit of the banking crisis, even though Barr aimed criticism at the central bank's lack of supervision and its failure to identify red flags around the issue.
