The Federal Reserve Board on Tuesday ordered banks to set aside more capital as a cushion against losses, bringing the United States in line with developing international standards and opening the door for a set of tougher rules for the nation's biggest financial institutions.
Almost all banks already meet the requirements the board unanimously approved Tuesday, but the new capital rules are only the beginning. Fed Gov. Dan Tarullo said the board plans to issue four proposals in the coming months to ratchet standards up even higher for banks deemed "systemically important," including JPMorgan Chase and Goldman Sachs.
Those proposals, coupled with the new capital rules, could force mega-banks to reduce their size and complexity to remain profitable. The Fed's approach gets to the heart of the "too big to fail" problem by limiting the risks big banks can pose to the financial system, and ultimately taxpayers, if they collapse.