WASHINGTON, Dec 15 (Reuters) - The largest U.S. banks will have to pay as much as $2 billion more a year to insure against a future market collapse, the U.S. Federal Reserve said on Thursday, as it outlined a new rule designed to further protect the financial system.
The rule demands Wall Street holds more debt that could be converted to shareholder equity if a bank is pushed to bankruptcy. Investor-owned stock is the main buffer against a bank failure.
Half of the eight largest U.S. banks would need to issue roughly $50 billion in fresh debt to satisfy the new standard, known as Total Loss Absorbing Capacity (TLAC), according to Fed estimates.
Taken together, the eight banks’ overall annual funding costs are set to increase by between $680 million and $2 billion, the Fed has said.
Fed officials declined to identify the four banks that lack sufficient debt. Wells Fargo & Co said in November it envisioned issuing at least an additional $29 billion in debt to satisfy the rule.
Large banks were already making significant strides to satisfy the new rule, Fed officials said.
The final rule issued on Thursday largely upholds a draft issued early this year, but with a few concessions to the industry.
Much existing debt will be counted towards satisfying the new rule, the Fed said, a process known as ‘grandfathering’.
“This grandfathering should significantly reduce the burden of complying with the requirements,” the Fed said in a statement.
Besides Wells Fargo, the banks expected to satisfy the new rule are JPMorgan Chase & Co, Bank of America Corp , Citigroup Inc, State Street Corp, Bank of New York Mellon Corp, Morgan Stanley and Goldman Sachs Group Inc.
Some of the largest subsidiaries of foreign banks must also satisfy TLAC. (Reporting By Patrick Rucker in Washington; Additional reporting by Dan Freed and David Henry in New York; Editing by Bill Rigby)