Bank stocks dip on Fed capital requirement decision

Fed decides not to renew capital relief for banks

Bank stocks fell on Friday after the US Federal Reserve made the surprise decision not to extend a rule that had allowed banks to relax their capital levels.

Recent weeks had seen the central bank come under intensifying pressure from a number of Democratic politicians not to extend the temporary Supplementary Leverage Ratio (SLR) exemptions issued last May at the height of Covid-related market uncertainty.

In a statement the Fed said: “The temporary change was made to provide flexibility for depository institutions to provide credit to household and businesses in light of the Covid-19 event.”

As scheduled, therefore, from April, banks will no longer be allowed to exclude Treasuries and deposits with the central bank when calculating their SLRs.

Earlier this week, the US central bank committed itself to continued bond-buying and ultra-low interest rates until 2023 at the earliest.

In a Friday opinion piece for the Wall Street Journal, Chairman Jerome Powell stated: “The recovery is far from complete, so at the Fed we will continue to provide the economy with the support that it needs for as long as it takes. I truly believe that we will emerge from this crisis stronger and better, as we have done so often before."

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In light of such dovish deeds and sentiment, the Fed’s SLR decision can be said to have caught traders and investors still reeling from a tumultuous Thursday on the wrong foot.

Having dipped by 3 per cent the day before, the Nasdaq traded up 0.2 per cent by mid-morning Friday trading. The S&P 500 and Dow Jones fared worse, falling by 0.2 and 0.7 per cent, respectively.

JPMorgan Chase shares stood 2.7 per cent lower, while Goldman Sachs and Bank of America suffered falls of 1 and 1.2 per cent, respectively.

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