Here Comes the Surcharge: Big Banks Dealt another Regulatory Blow by the Feds

21:09 20 November in Blog
Here Comes the Surcharge: Big Banks Dealt another Regulatory Blow by the Feds
In another effort to reduce the risk of “too big to fail” banks and financial institutions, the Federal Reserve plans to hit the largest of U.S. banks with an expensive new regulation.  Accordingly, Federal regulators intend to impose a surcharge on the largest U.S. banks requiring them to maintain a fatter cushion in order to protect them from potential losses. The version of the surcharge proposed by the Feds will be tougher than the one international regulators agreed to. 
Additionally, when determining the size of the new capital surcharge, the Fed will penalize those banks that heavily rely on volatile forms of short term fund, such as overnight loans.  By implementing these measures, some of the larger U.S. banks may need to increase their capital cushions beyond those of their international rivals.  The move has led some to wonder if Washington is putting U.S. banks at a competitive disadvantage.  The exact amount of capital needed by big banks has yet to be determined.
Banks have added substantial capital since the financial crisis and, at present, are currently subject to many new regulations. The exact range for their capital surcharge hasn’t been settled on by the Fed.  However, they are considering a range that extends a few percentage points higher than the top range of 2.5% of risk-weighted assets imposed by international regulators.  It’s quite possible U.S. banks could face surcharges as high as 4.5%.
According to regulators, by raising the capital requirement amounts for firms that pose the greatest risk to the U.S. financial stability, the Fed intends to improve these firm’s resiliency.  What is at issue is the requirement that the world’s largest financial institutions hold an additional layer of padding in case of another financial crisis.  While the details of the Fed’s proposal on specific banks are not yet clear, firms with large broker-dealer operations, like Goldman Sachs Group, could potentially face increased capital charges under the Fed’s plan.  This is because such firms rely on large short-term loans to finance client activities.
Firms like Goldman Sachs and Morgan Stanley count such short-term liabilities as more than one-third of their liabilities. Both firms have indicated in regulatory filings that they are maintaining enough capital to meet international surcharge requirements.  The U.S.’ plan to enact a higher surcharge shows the latest move by Washington to boost the banking system by requiring Wall Street to protect themselves against losses. As a bonus, regulators adopted additional rules requiring banks to hold safe assets that they can sell for cash if they need to. 
It is not clear how many U.S. firms will be required to raise additional capital to comply with the United States’ tougher surcharge requirements, and some of the larger banks declined to comment. However, it is clear that larger U.S. banks will argue the surcharge is putting them at a competitive disadvantage. 
As the Feds continue to further regulate the banking industry, loans to small and midsized businesses become increasingly more difficult to obtain.   Capstone Capital Group, LLC can assist you.  We have been assisting small to mid-sized businesses in obtaining the required working capital they need to grow and thrive, and have been doing it for many years.
Capstone specializes in Single Invoice Factoring (“Spot Factoring”) for businesses in need of immediate cash. For more information about our Spot Factoring product and how we can help your business grow, contact us today at (212) 755-3636, or visit our website at www.capstonetrade.com.
 

Regulators Remain Unconvinced of Big Bank’s Ability to Safely Wind Down in a Financial Crisis

19:14 15 August in Blog
 As part of the 2010 Dodd-Frank regulatory scheme, banks are required to submit an annual “living will” detailing, among other things, the bank’s operations and exposures, in addition to a plan of how the bank could be dismantled without relying on tax payer funded support in the event they reach a point of potential failure during a financial crisis.
 
After a review by the Federal Reserve (the Feds) and the Federal Deposit Insurance Corporation (FDIC) of recently submitted bankruptcy plans of eleven of the nation’s largest banking institutions, the Feds and the FDIC chastised the plans as being “unrealistic or inadequately supported” and that the plans “fail to make, or even identify the kinds of changes in firm structure and practices that would be necessary to enhance the prospect for an orderly failure.”
 
Regulators set a time frame for these banks to address the apparent deficiencies in their plans by July 2015 or face tougher capital requirements, growth restrictions, and even go so far as to break up the bank if they are unable to make significant progress. 
In order to avoid harsher rules and possible dismantling, regulators say banks can take steps to make their bankruptcy plans by establishing a rational and less complex legal structure, essentially showing they can quickly produce reliable information about their exposures, and amending derivatives contracts to make them easier to bring through bankruptcy. 
 
These actions by regulators gives a clear sign they believe that banks aren’t doing enough to insulate themselves and protect the tax payer in the event of a future financial crisis. With increased regulation and scrutiny looming over the banking industry, which isn’t likely to ease up any time soon, banks are feeling the pressure to restrain growth by curbing lending practices.
 
 Some borrowers, like small business owners, may have a more difficult time obtaining the necessary financing they need to maintain and grow their business.  Unfortunately, the focus on unwinding banks and compliance with regulations takes away resources that can be used to help finance small businesses.  Capstone Capital Group, LLC has funding solutions that can get you the financing the big banks can’t provide. 
Capstone Capital Group, LLC has been helping small to mid-sized businesses for years obtain the necessary working capital they need to sustain and grow during uncertain economic times without all the red tape you normally get from most banks.  Capstone Capital Group, LLC specializes in Business finding solutions, Single Invoice Factoring (“Spot Factoring”) for firms in need of immediate cash. Spot Factoring provides flexible, no contract invoice selling in exchange for working capital from Capstone Capital Group.

 

Pulling Back the Reigns of Growth – Small Banks Restrain Progress Fearing Costly Regulations

14:55 08 August in Blog
Banks have come under intense scrutiny in recent years following the financial crisis that began in 2007.  The regulatory pressure doesn’t seem to be letting up anytime soon as regulators attempt to reign in banks designated as “systemically important.”  
 
According to regulators, systemically important banks are those which report assets of more than $50 billion on average for four quarters in a row.  Once a bank has achieved this status, banks are required to comply with, among other things, stringent capital requirements, submit to yearly “stress tests” and to create processes for the winding down of a bank in the event of a crisis.
 
The purpose of placing a $50 billion asset threshold amount, according to regulators, is to keep a closer eye on banks whose potential problems could endanger the broader financial system.  However, some critics within the banking industry argue the threshold is too low and that banks who come close to that amount are far from “financial giants”.  This issue has caught the eye of Federal Reserve governor Daniel Tarullo, who stated in a speech that it might make more sense to increase the threshold from $50 billion to $100 billion for applying certain rules.  The suggestion being that the “stress test” process seems unnecessary for banks under $100 billion. 
 
As a consequence of these stringent and costly regulatory requirements, some small asset banks like New York Community Bank (NYCB), whose reported assets in the first quarter of 2014 was $47.6 billion, has come out with a statement that it is restraining its lending growth citing loans amount to assets.  If other small banks, like NYCB, who are coming up to the $50 billion threshold limit decide to take a similar approach and restrain growth by curbing its lending practices, some borrowers, like small business owners, may have a more difficult time obtaining the necessary financing they need to maintain and grow their business.  Fortunately, Capstone Capital Group, LLC has the solution. 
 
Capstone Capital Group, LLC has been helping small to mid-sized businesses for years obtain the necessary working capital they need to sustain and grow during uncertain economic times without all the red tape you normally get from most banks.  Capstone Capital Group, LLC specializes in Purchase Order factoring, Single Invoice Factoring (“Spot Factoring”) for firms in need of immediate cash. Spot Factoring provides flexible, no contract invoice selling in exchange for working capital from Capstone Capital Group.  

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