Fed official proposes new U.S. bank cap

By Wire services | October 11, 2012 | Last updated on October 11, 2012
2 min read

U.S. lawmakers are being urged by regulators to cap the size of banks based on the amount of their borrowings, reports Financial Times.

Currently, the banks each hold no more than 10% of the country’s deposits. FT says the new law would set the amount so low that banks would have to be restructured.

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It also says the proposal is similar to a possible legislation that would force a break-up of the six biggest U.S. banks by assets.

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In other news, the Fed also released the results of its Beige Book report yesterday. It found consumer spending is flat in the U.S., but says economic growth has improved over the past few months.

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Auto sales have improved across the country— they jumped up 13% in September from a year earlier—and the majority of its regional banking districts have strengthened.

The information collected in the report by the Fed’s 12 regional banks will be used as the basis for the group’s policy discussion at the Oct. 23-24 meeting. But economists expect no major moves because the Fed adopted aggressive new policies in September.

They’re buying mortgage bonds to lower longer-term rates, which could spur more borrowing and spending. And plan to keep short-term interest rates near zero until at least mid-2015, even after the recovery shows signs of strengthening.

By making borrowing cheaper, the Fed hopes to fuel the modest housing recovery since people tend to feel wealthier and spend more freely when home prices rise.

Read: U.S. investor appetite returning

Overall, consumers have been cautious this year and have contributed to slower growth. The economy grew at a lackluster 1.3% annual rate in the April-June quarter, down from the 2% rate in the first three months of the year.

Wire services