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Bank Earnings Boom as Regulators Relax Rules

The Federal Reserve this week proposed two changes to its rules for the amount of capital banks need to hold. Big banks will have more freedom to distribute capital to their shareholders than they have had since rigorous capital requirements were imposed in the aftermath of the 2008 financial crisis.

The eight largest United States banks will be able to reduce their capital buffers by a total of $121 billion, the Fed estimates.

JPMorgan’s quarterly results show it has already begun preparing for a more relaxed environment. The bank’s key capital ratio — its safest form of capital measured as a percentage of its assets, adjusted for risk — sank to its lowest level in a year. The bank’s chief financial officer, Marianne Lake, said the Fed’s rule changes came as no surprise, and that JPMorgan welcomed them.

“We don’t think the company needs to continue to accrue capital,” she said.

Wells Fargo also reported quarterly earnings on Friday. The bank’s overall results were better than analysts had been expecting. But Wells warned that it might have to revise its results if two regulators, the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, moved to penalize the company for forcing some of its customers to buy unnecessary auto insurance.

The regulators jointly proposed settling their actions against Wells over the auto insurance and another matter for $1 billion.

“At this time, we are unable to predict final resolution of the C.F.P.B./O.C.C. matter and cannot reasonably estimate our related loss contingency,” the company said in a news release.

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News credit : Nytimes