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Why Big Banks Could Be Forced to Raise Up to $1.19 Trillion

JPMorgan ChaseJPMorgan Chase
A man carrying a briefcase walks past the JPMorgan Chase & Co. headquarters.Photograph by Ron Antonelli — Bloomberg via Getty Images

A plan meant to ensure that the world’s largest banks have enough of a financial cushion to absorb losses without failing could force big lenders to raise as much as $1.19 trillion by 2022.

That’s how much the world’s largest lenders could need to raise in debt or other securities that can be written off in the event that those institutions fail and need to be wound down, The Wall Street Journal said.

The rules were unveiled Monday by the Financial Stability Board, an international body that promotes financial stability. The proposed standards are designed to ensure that the global systemically important banks will have enough recapitalization capacity available for authorities to resolve any issues surrounding a big bank without compromising the financial stability of the broader banking system. There are 30 global institutions that are considered global systemically important banks, including J.P. Morgan Chase (JPM) and HSBC.

The Financial Stability Board’s standard is “an essential element for ending too-big-to-fail banks,” said Mark Carney, governor of the Bank of England and chairman of the group.

“The economic impact assessments conducted as part of the detailed policy work shows that the economic benefits of the final standard far outweigh the costs,” Carney added.

Leaders of the Group of 20 major economies would need to endorse the new FSB rules before they could go into effect. As The Journal notes, the rules are supposed to prevent what occurred during the financial crisis in 2008, when taxpayers bailed out banks that were at risk of failing.