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Kashkari Urges Big Investors to Demand Banks Hold More Capital

Kashkari Urges Big Investors to Demand Banks Hold More Capital

Big investors who own shares in and trade with the country’s largest banks should push lenders to reduce risks in the financial system by increasing capital levels, Federal Reserve Bank of Minneapolis President Neel Kashkari said.

“Why am I coming to you? Because you are uniquely positioned to drive much-needed reforms in the banking sector and the broader financial markets that have proven so fragile,” Kashkari said Friday in remarks prepared for a virtual event with the Council of Institutional Investors, an association of large investors managing approximately $4 trillion of assets for pension funds, foundations and endowments.

“You are huge players in the capital markets, which means you are important customers of large banks,” he said. “If the largest pension plans in America got together and said we aren’t going to trade with banks that do not have at least 24% equity, they would increase their capital levels.”

Kashkari, who as a then-U.S. Treasury official oversaw the government bailout of big banks in 2008, has advocated for higher capital requirements since becoming president of the Minneapolis Fed in 2016. Officials at the central bank in Washington responsible for deciding regulatory and supervisory policy, on the other hand, have softened financial regulations somewhat under President Donald Trump’s administration.

©2020 Bloomberg L.P.