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Federal Reserve Sets Limits on What Biggest Banks Can Loan Each Other
The Federal Reserve Board on Thursday approved a rule to prevent concentrations of risk between large banking organizations and their counterparties from undermining the country’s financial stability. The limits are aimed at halting the buildup of loans among the biggest Wall Street institutions, which was cited as one of the top causes of 2008’s financial crisis.
The new rule caps credit exposure to another bank for big banks – those with assets of $250 billion or more. The largest banks must limit exposure to another big bank to 15% of its safest capital (Tier 1 capital). Credit limits will be tailored to the size of the bank.
Fed Chairman Jerome H. Powell says, “This final rule is another step in sustaining an effective and efficient regulatory regime, that keeps our financial system strong and protects our economy while imposing no more burden than is necessary to get the job done.”
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