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The proposals, put forward by the Federal Reserve last week, were adopted on Tuesday by the FDIC and the Office of the Comptroller of the Currency. Regulators are seeking comment on what kind of changes, if any, should be implemented before the rules go into effect.
FDIC board members generally praised the proposals, which call for banks to hold more higher-quality capital to protect themselves and the financial system against unanticipated losses.
But Thomas Hoenig and Jeremiah Norton, the two newest directors on the FDIC’s five-man board, said they were worried the rules did not go far enough.
“I remain concerned that, as proposed, the minimum capital ratios will not significantly enhance financial stability”, said Mr Hoenig, the former head of the Kansas City Fed who has called for the largest US financial institutions to be broken up.
Mr Norton said that for certain assets, the so-called “risk weightings ... do not reflect sufficiently the inherent risk of default and loss given default”.
He cited a recent survey of 130 institutional investors, which found that most respondents indicated they did not trust banks’ internal models to calculate their capital needs.
“These measures imply more accuracy than can be realised”, Mr Hoenig said. “Risks migrate from assigned levels, and formulas always go stale. The more complicated a rule, the more likely it will be gamed, with the most brazen winning out over the most conscientious participants in the market.”
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