4/24/2017, 5:58 PM (Source: TeleTrader)
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Fed's Kashkari: We should double capital requirement

It is too costly for small banks to comply with financial regulations compared to the five largest lenders in the United States, which in return boosts benefits from the economies of scale for the big players, the president of the Federal Reserve Bank of Minneapolis reiterated on Monday. Speaking in Los Angeles, Neel Kashkari, this year's voting member at the national monetary policy panel, said the very serious issue could be addressed by doubling the capital requirements level for the biggest banks. The society would be better off, the rate-setter added.

He went on to suggest introducing a tax on the debt of large hedge funds, at $50 million and more. Kashkari criticized the 'too big to fail' lenders for rejecting stricter rules, where they argue it makes business models unsustainable, and noted it is evident banks are buying back stock. Higher capital requirement hampers return on equity, he acknowledged, but stressed that financial giants need to do their share in protection to reduce chances of crises and bailout. Kashkari compared the quotas with downpayments requested by banks from mortgage seekers to protect themselves from defaults.

Big banks "act in a pack" and make the same moves and investments, so it's hard for investors to differentiate between them, like when traders rushed out of banking a decade ago at the start of the crisis, the Fed's official stated. 

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