Tags: Fed | rule | fail | consolidation

Fed Proposes Rule Limiting Consolidation of Financial Firms

Thursday, 08 May 2014 04:10 PM

The Federal Reserve is seeking input on a measure that would bar U.S. banks from acquisitions that would push their share of all financial-company liabilities above a 10 percent threshold.

The Fed proposal released today would implement a Dodd-Frank Act mandate that would match a nationwide 10 percent cap that already applies to deposits, according to a notice of proposed rulemaking released today. The central bank is inviting public comments until July 8.

The limit was meant to promote financial stability and combat perceptions that some U.S. institutions may be too big to fail. The Financial Stability Oversight Council said in a 2011 report that the provision will reduce the risks “created by increased concentration arising from mergers, consolidations or acquisitions.”

The proposal, which would need a final approval after the comment period, calls for the liabilities to be calculated as a two-year average. The liabilities of a financial firm would be the difference between its risk-weighted assets and total regulatory capital, according to the Fed.

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