This week, ratings agency placed eight large banks on “credit watch negative” after a decision made by the US Federal Reserve, which meant that if there was a future crisis, the government would be hesitant about helping them.
The decision that the Federal Reserve came to last week was that in order to operate securely, large banks should adopt another buffer and become “too big to fail”. According to Fed officials, $120 billion needs to be raised to meet the new requirements and this should reduce risk, derailing markets or needing taxpayer money, CNBC reports.
CNBC also revealed that the banks that this would apply to include Wells Fargo, Goldman Sachs, State Street and Morgan Stanley, but the Fed believes that six of the eight banks would not be able to comply with the new rules.
Federal Governor Daniel Tarullo announced in a statement last week that this decision would be effective. “By making the failure of even the largest banks more manageable, the proposed regulation will be another important step in solving the too-big-to-fail problem,” Tarullo said.
Being on “credit watch negative” results in a 50% chance that the banks’ ratings will be cut within the next three months, CNBC explains. “S&P plans to conclude a review by year-end to determine whether it should continue to incorporate “extraordinary government support” in its ranking for systemically important banks – those who collapse could damage the US or global economy.
S&P made a statement at the end of last week which highlighted that US regulators have made progress and their plans are increasingly clearer about how to resolve future issues. “The action reflects our belief that US regulators have made further progress and provided more clarity in enhancing their plans for resolving systemically important institutions – lowering the probability that the US government would provide extraordinary support to these institutions to enable them to remain viable,” S&P said.
The European Central Bank's (ECB) hotly anticipated meeting on Thursday afternoon made the euro skyrocket, as president Mario Draghi announced interest rates would remain at 0% and its quantitative easing programme will stay until at least the end of 2017.
The “sad truth” of banking is that many jobs will be automated in the future, Deutsche Bank's chief executive said yesterday. Despite this, a recent survey found that 98% of European workers are optimistic about the changes automation will bring to their workplace.
The US Federal Deposit Insurance Corporation is suing nine European banks for allegedly contributing to the collapse of 39 US banks that had a collective value of more than $440bn (€375.6bn).
The world’s second-biggest economy will grow faster than previously predicted over the next four years, but the rate is unsustainable unless China addresses the problem says the International Monetary Fund.