Banks Must Set Aside More Cash, Fed Says

Jun 8, 2012 8:07am

Morning Business Memo:

The Federal Reserve wants US banks to set aside more money to guard against unexpected losses. Proposed rules would require all banks to hold at least 7 percent of their assets in capital reserves. That’s up from a minimum of just 2 percent currently required. The Fed’s new policy is seen as added insurance aimed at preventing a repeat of the 2008 financial crisis. Banks don’t like the idea one bit, and have lobbied vigorously against the proposals. They say setting aside so much money in reserve could limit what they could lend. The rules are open to comment until September. They will be made final after that.

Perhaps there’s a lesson to be learned from Spain. Reuters reports this morning that the Spanish government will request European aid this weekend for its struggling banks. They got caught up in the collapse of the country’s real estate bubble. Fitch downgraded Spain’s debt rating to two notches above junk bond status, and warned more downgrades were possible.

This morning’s Washington Post reports: “From manufacturers in the Midwest to upscale retail shops in Manhattan, a wide variety of American companies are feeling the pinch of Europe’s economic contraction, helping to hold back recovery in the United States.” Ford says Europeans are buying fewer cars and parts. The Post reports Kraft Foods says sales of candy and gum in Europe are lagging.  ”And jeweler Tiffany & Co. says fewer European tourists are shopping at its flagship Fifth Avenue store.”

Americans cut back sharply on their credit card purchases in April. The Federal Reserve says consumers increased borrowing by $6.5 billion in April, just half of the March gain.

They were looking for a hint but didn’t get one. Some investors were disappointed after Fed Chairman Ben Bernanke gave no hint of action soon to jump start US economic growth. Bernanke avoided sending any signals in his cautious appearance before a congressional committee.

Here’s something you might see down the road: cars that talk to each other and warn drivers of impending collisions. The government this summer is launching a year-long test involving nearly 3,000 cars, trucks and buses using volunteer drivers in Michigan. The vehicles will be equipped to continuously communicate over wireless networks. They will exchange information on location, direction and speed 10 times a second with other similarly equipped cars within about 1,000 feet. A computer analyzes the information and issues danger warnings to drivers.

Richard Davies Business Correspondent ABC NEWS Radio. More on twitter: @daviesabc

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