As the third-largest bank in Central Florida, Wells Fargo & Co. must raise $40 billion in new debt to keep up with industry regulation. The Federal Reserve announced a new regulation at the end of the October, and it will impact the largest banks in the country. The idea of the new regulation is to prevent a government bailout of the country’s largest banks again, following the 2008 financial crisis. According to the Wall Street Journal, the regulation will ask banks to issue debt as another level of protection in case the institution runs out of capital.
John Shrewsberry, Wells Fargo’s chief financial officer, said at a conference last Friday the bank needs to issue $40 billion in long-term debt to reach the “total loss-absorbing capacity.” The debt issuance would be a relatively small portion of the bank’s liabilities, which stood at $1.56 trillion at Sept 30. Even with the debt issuance, Wells Fargo will be able to post modest growth in net interest income, a measure of profits from lending, in 2016 from 2015.
The issuance will help Wells Fargo to comply with new regulation; it also ensure that many of the largest U.S. banks have enough equity capital and long-term debt to withstand crises.