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Comment by iskander | Hacker News Reader

https://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bl...

>the Financial Services Modernization Act of 1999...repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies, and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company

FDIC insurance ends up being the main guarantee of safety, especially in the modern era of 0% reserve requirements.

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> especially in the modern era of 0% reserve requirements

They’ve been replaced with capital requirements, which make a lot more sense in modern finance than reserve requirements.

What's the current state of those capital requirements in US banks?

Is this the latest requirement? https://www.federalreserve.gov/newsevents/pressreleases/bcre...

(4.5%)

And how do banks actually measure up to this minimum?

The Fed runs stress tests all the time and currently the banks are preforming perfectly during them.

which means the tests are not stressing. That is a good thing as they test for conditions that previously resulted in crashes. But it could also be a bad thing if the banks adapted to formally pass tests while straining their business with schemes that are overlooked

We do know, at least from the last crisis, that so far the US stress tests have been effective at accurately gauging bank strength.

(This is in contrast to the ECB stress tests during the Euro crisis, where repeatedly banks that had passed a stress test ended up needing bailouts or falling over.)

The conclusion during COVID was that the stress tests were too stringent and COVID was much better for the banks than worst case stress tests.

Basically stress tests simulate large drops in asset values, but during COVID the trading desks made bucketloads of money when volatility was high. The financial sector is pretty resilient these days, the risky stuff mostly moved off bank balance sheets into private funds not subject to the same regulatory requirements.

The 4.5% is the baseline; subject to additional stress capital buffer (based on DFAST supervisory stress-test results) and systematically-important institution weighting.

https://www.federalreserve.gov/publications/large-bank-capit...

So JP Morgan is 11.2%; Citigroup is 10.5%; for example.

>especially in the modern era of 0% reserve requirements.

Total red herring; reserve requirements went away but they were irrelevant because banks were holding massively in excess of the required reserves in any case.

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