News / Economy

US to Require Biggest Banks to Hold More Cash Reserves

FILE - Exterior view of JPMorgan Chase offices in San Francisco, October 2008.FILE - Exterior view of JPMorgan Chase offices in San Francisco, October 2008.
x
FILE - Exterior view of JPMorgan Chase offices in San Francisco, October 2008.
FILE - Exterior view of JPMorgan Chase offices in San Francisco, October 2008.
VOA News
U.S. regulators are ordering the country's eight largest banks to double their cash reserves in hopes of preventing another financial crisis like the one that led to world economic turmoil five years ago.

Under the new requirement, the banks collectively might have to keep about $150 billion more in reserve as protection against loans, investments and other assets that fail. The affected banks include some of the best-known American corporations, including JPMorgan Chase, Goldman Sachs, Citigroup and Morgan Stanley, all of which operate globally.

The rules are part of an agreement reached by world financial regulators meeting in recent years in Basel, Switzerland, to force banks to keep more cash in reserve, so taxpayers do not have to bail out banks when they make bad lending or investment decisions. The U.S. requirements are well above those set by the international finance chiefs.

One U.S. banking expert, Bert Ely, said he does not think the bigger U.S. reserve requirements, however, will necessarily prevent another financial crisis like the one in 2008. He said that banks may just move some of their lending to what he described as lightly-regulated 'shadow banks," such as mutual funds and some types of securities.

"The problem is that bank capital requirements are like a tax on banks. And the higher you push those requirements, the greater the incentive is for financial engineers around the world to figure out ways to provide credit outside of the banking system. And this is what leads to the creation of what we call 'shadow banking,'" he said.

Ely said that U.S. regulators are hoping that by requiring the banks to keep more cash on hand, it will also force them to become smaller, to limit government financial responsibility for them if they make too many bad loans.

"While the purported reason for requiring the large banks to have more capital is to make them safer, there is another agenda afoot, at least in the United States. And that is to raise the capital requirements for the eight largest banks so high that they will be forced to downsize," said Ely. "This is seen as a way to get rid of the so-called 'too big to fail' problem, that is where you have banks that are so large that they cannot fail if they do a lot of bad lending."

The banks have until 2018 to meet the new reserve requirements.

You May Like

Obama: Alaskans Feel Signs of Climate Change

They're seeing bigger storm surges as sea ice melts, more wildfires, erosion of glaciers, shorelines More

Katrina Brought Enduring Changes to New Orleans

The city’s recovery is the result of the people and culture the city is famous for, as well as newcomers and start-up industries More

Magical Photo Slides Show Native Americans in Late 1800s

Walter McClintock spent 20 years photographing the Blackfoot Indians and their vanishing culture at the dawn of the modern age More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Colombians Flee Venezuela as Border Crisis Escalatesi
X
August 27, 2015 2:08 AM
Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Is China's Economic Data Accurate?

Some investors say China's wild stock market gyrations have been made worse by worries about the reliability of that nation's economic data. And some critics say the reports can mislead investors by painting an unrealistically-strong picture of the economy. A key China scholar says Beijing is not fudging ((manipulating)) the numbers, but that the economy is evolving quickly from smoke-stack industries to services, and the ways of tracking new economic activity are falling behind the change. V
Video

Video Next to Iran, Climate at Forefront of Obama Agenda

President Barack Obama this week announced new initiatives aimed at making it easier for Americans to access renewable energy sources such as solar and wind. Obama is not slowing down when it comes to pushing through climate change measures, an issue he says is the greatest threat to the country’s national security. VOA correspondent Aru Pande has more from the White House.
Video

Video Shipping Containers Provide Experimental Housing

Housing prices around the San Francisco Bay area are out of reach for many people, so some young entrepreneurs, artists and tech industry workers are creating their own houses using converted shipping containers. But as VOA's Mike O’Sullivan reports from Oakland, the effort requires ingenuity and dealing with restrictive local laws.
Video

Video Arctic Draws International Competition for Oil

A new geopolitical “Great Game” is underway in earth’s northernmost region, the Arctic, where Russia has claimed a large area for resource development and President Barack Obama recently approved Shell Oil Company’s test-drilling project in an area under U.S. control. Greg Flakus reports.
Video

Video Philippine Maritime Police: Chinese Fishermen a Threat to Country’s Security

China and the Philippines both claim maritime rights in the South China Sea.  That includes the right to fish in those waters. Jason Strother reports on how the Philippines is catching Chinese nationals it says are illegal poachers. He has the story from Palawan province.
Video

Video Technique May Eliminate Drill-and-Fill Dental Care

Many people dread visiting dentists because they're afraid of drills. Now, however, a technology developed by a British firm promises to eliminate the need for mechanical cleaning of dental cavities by speeding a natural process of tooth repair. VOA’s George Putic reports.
Video

Video China's Spratly Island Building Said to Light Up the Night 'Like A City'

Southeast Asian countries claim China has illegally seized territory in the Spratly islands. It is especially a concern for a Philippine mayor who says Beijing is occupying parts of his municipality. Jason Strother reports from the capital of Palawan province, Puerto Princesa.
Video

Video Ages-old Ice Reveals Secrets of Climate Change

Ice caps don't just exist at the world's poles. There are also tropical ice caps, and the largest sits atop the Peruvian Andes - but it is melting, quickly, and may be gone within the next 20 years. George Putic reports scientists are now rushing to take samples to get at the valuable information about climate change locked in the ice.
Video

Video French Experiment in Integrating Roma Under Threat

Plans to destroy France’s oldest slum have sparked an outcry on the part of its Roma residents. As Lisa Bryant reports from the Paris suburb of La Courneuve, rights groups argue the community is a fledgling experiment on integrating Roma who are often outcasts in many parts of Europe.
Video

Video Kenyans Turn to Agriculture for Business

Each year Kenyan universities continue to churn out graduates for the job market despite the already existing high rate of unemployment among youth in the country. Some of these young men and women have realized that agriculture can be as rewarding as any other business or job, and they are resorting to agribusiness in large numbers as a way of tackling unemployment. Rael Ombuor reports for VOA.
Video

Video First Women Graduate Elite Army Ranger School

Two women are making history for the U.S. Army by proving they are among the toughest of the tough. VOA's Carla Babb reports from Fort Benning, Georgia as 94 men and those two women rise as graduates of the difficult Ranger school.

VOA Blogs

World Currencies

EUR
USD
0.8874
JPY
USD
120.83
GBP
USD
0.6497
CAD
USD
1.3271
INR
USD
66.162

Rates may not be current.