30 October 2010

Top US bank regulator supports stricter capital requirements

Speaking at a gathering at Harvard University, Sheila Bair, head of the United states Federal Deposit Insurance Corporation mentions that she expects large U.S. banks will have to meet stricter capital requirements than specified in the new international rules known as Basel III.

She added she plans to consult on the matter with the Federal Reserve, which oversees large U.S. banks more directly.

The new international capital rules known as Basel III, recently agreed to by regulators from 27 countries, call on major banks to maintain tangible common equity levels of 7 per cent by 2019, up from 2 per cent currently.

Bair  pushed for tougher rules in Basel, as she has on other policy matters amid the financial crisis and said standards aren't as high as many would have liked, but they are a big improvement from before the crisis. She also does not agree that the new requirements will reduce the availability of credit or raise borrowing costs, as some critics have charged.

Bair, whose agency oversees some 4 800 smaller U.S. banks, made clear the higher capital requirements were part of a broader view she had that policies including those of the new Dodd-Frank financial reform act should discourage the growth of larger banks. "Concentration is a serious issue. I'm hoping, and expecting, the measures we're putting in place now will create pressures to downsize, not to grow," on financial institutions, she said.

She notes, however, that so far the reforms are working and the pace of bank failures is dropping.

© Reuters