A group of America’s most powerful bankers is debating whether to sue the US Federal Reserve.
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According to Semafor, JPMorgan Chase, Citibank, and Goldman Sachs are among the major banks that, through their trade group, hired one of the best conservative trial lawyers in the country to draft the lawsuit.
Eugene Scalia, the son of former Supreme Court Justice Antonin Scalia, is leading the legal effort to repeal proposed rules requiring banks to increase the amount of cash on hand.
“[Scalia] is quietly preparing a lawsuit to block the proposed rules on behalf of the Bank Policy Institute, a trade group that represents JPMorgan, Citibank, Goldman Sachs, and others, according to people familiar with the situation.
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It would be the first time in recent memory that the industry has sued the Fed, and it would represent a departure from standard halls-of-power persuasion efforts that seek to avoid antagonizing its chief regulator.
The Fed wants banks to have an additional 20% of cash on their balance sheets. The move is intended to ensure they have enough capital to withstand liquidity concerns and avoid bank runs, which wreaked havoc on the banking industry a year ago.
However, the banks argue that the rules are far too strict, citing an internal analysis that shows they would be required to keep 30% of their cash on hand.
Scalia claims the Fed has a lot of explaining to do.
“In terms of legal process, it will not suffice to say that a group of regulators met in Switzerland and brought this rule down from the mountain.
The agencies must complete their own work, demonstrating why these new requirements are appropriately calibrated and why the benefits outweigh the costs. This proposal does not do that.”
Banks across the United States continue to incur significant bond losses.
And, while banks can simply hold bonds until they mature, they can become a significant liability when banks require liquidity.
According to a recent report from the Federal Deposit Insurance Corporation (FDIC), the total amount of unrealized securities losses in the banking system has now reached $684 billion.
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