CONTACT: Laura Peavey
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ICYMI: Support for Bank Capital Requirement Reform Continues to Build
Washington, D.C. – The Federal Reserve’s conference on bank capital requirements highlighted the growing support for modernizing capital rules for the largest U.S. banks. Industry and policy experts provided their perspectives on the effectiveness of the overall capital framework and potential reforms to support U.S. economic growth and stability.
“America’s largest banks are pillars of strength and stability for the U.S. financial system. However, current capital requirements are hindering their ability to support families, small businesses, and American competitiveness. Today’s conference was an important step toward identifying reforms that will ensure the capital framework functions as intended—preserving resilience while driving growth. Forum members are committed to continuing to work with policymakers and regulators to achieve our shared goal of a thriving U.S. economy,” said Forum President and CEO Kevin Fromer.
Read highlights from today’s conference:
Tiffany Eng, BNY, on current leverage ratio requirements, highlighting the need for reform: “So banks’ ability to act as a shock absorber for both cash and Treasury securities can be constrained by leverage ratios as they’re constructed today.”
Hal Scott, Harvard University, on the financial regulators’ proposal to reform the leverage ratio: “This proposal does not reduce risk-based capital. It merely moves leverage into the background where it always has belonged.”
Mike Mayo, Wells Fargo, on the importance of simplifying requirements: “The system today, it’s too confusing, too constraining, and too costly. So, let’s make them simpler and strong. … There’s too many targets. It’s acronym soup and too much capital volatility.”
Randal Quarles, Cynosure Group, on the consequences of driving activities outside of the banking system: “If we adopt regulations that are going to push something out of the banking system … we will push it into either parts of the financial system that are less transparent and less well capitalized or jurisdictions that are less transparent.”
Sheara Fredman, Goldman Sachs, explains the impact of rising capital requirements: “Whether it’s the stress test, or Basel III Endgame, or GSIB, that to the extent that you’re increasing the capital requirements on particular products for the most highly regulated banks, that activity will go somewhere and it will go out to the less transparent, outside of the banking system.”
Steven Chubak, Wolfe Research, on the unintended consequences of imposing higher capital requirements: “It causes a pullback in lending. It limits credit availability, but especially to low-end consumers. It also drives much more activity outside the regulated perimeter.”
Al Moffitt, JPMorgan, discusses the importance of appropriately calibrating the U.S. GSIB surcharge: “So, the calibration must, and I say must, reflect the totality of all regulations to ensure it’s fit for purpose if we look at everything and make sure the cost of low-risk activities are appropriately calibrated.”
Sharon Yeshaya, Morgan Stanley, sums up the need for a holistic review of capital requirements: “It feels like an old New York City apartment that they just keep painting over and over and over again. … So, I think that we should strip the paint and we should take a look and say, what are we trying to achieve?”
Alastair Borthwick, Bank of America, stresses the need for regulators to review how overlapping capital rules affect the economy: “It’s the sort of thing that has a real Main Street impact.”
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The Financial Services Forum is an economic policy and advocacy organization whose members are the eight largest and most diversified financial institutions headquartered in the United States. Forum member institutions are a leading source of lending and investment in the United States and serve millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, financial inclusion, deep and liquid capital markets, a competitive global marketplace, and a sound financial system.