The largest U.S. banks will have to pay as much as $2 billion more a year to insure against a future market collapse, the U.S. Federal Reserve says today, as it outlines a new rule designed to further protect the financial system.
As Reuters reports, the rule demands Wall Street holds more debt that could be converted to shareholder equity if a bank is pushed to bankruptcy. Investor-owned stock is the main buffer against a bank failure.
Half of the eight largest U.S. banks would need to issue roughly $50 billion in fresh debt to satisfy the new standard, known as Total Loss Absorbing Capacity (TLAC), according to Fed estimates.
Taken together, the eight banks’ overall annual funding costs are set to increase by between $680 million and $2 billion, the Fed has said.
That wealth will help assure that taxpayers are never again called upon to bail out Wall Street, says Fed Governor Daniel Tarullo.
“We must avoid having to inject taxpayer capital into a failing bank out of fear that its insolvency would bring down the whole financial system,” says Tarullo.
In the wake of a 2008 housing market collapse, Congress authorized a $700 billion rescue of the failing banks.
