By Owen Davis -
Federal Reserve Chair Janet Yellen suggested Wednesday that Wall Street's biggest banks are shrinking thanks to the Fed's new capital requirements, rules intended to mitigate the risks individual firms pose to the financial system. In testimony to the House Financial Services Committee, she indicated this was precisely what the Federal Reserve had in mind.
"We're beginning to see discussions that these capital charges are sufficiently large [that] it's causing those firms to think seriously about whether or not they should spin off some of their enterprises to reduce their systemic footprint," Yellen said, according to a Bloomberg report. "Frankly, that's exactly what we want to see happen."
The new capital measures, proposed in December, govern how much cash the eight biggest banks need to maintain in relation to their liabilities, a rule intended to minimize systemic risk. The Fed would hold American financial giants to even higher capital standards than those required by international agreements.
Analysts speculating on which banks might be due for cutbacks have singled out two firms: Citigroup (NYSE:C) and JPMorgan Chase (NYSE:JPM). In January Goldman Sachs (NYSE:GS) released a report suggesting JPMorgan might have to break into smaller pieces if the Fed rules go into effect. JPMorgan, which has over $2.5 trillion in assets, has already altered some of its operations.
Earlier this week it was reported that JPMorgan would begin levying fees on its largest depositors, an effort to diminish its risk profile in light of new Fed rules.
Yellen has previously indicated that she didn't favor breaking up the big banks directly, but she has acknowledged that the new capital proposals might lead some firms to downsize. In a statement issued last December, Yellen said the requirements "would encourage such firms to reduce their systemic footprint."