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Financial Services Forum CEO highlights migration of risk in “Banking with Interest” podcast
Washington, D.C. – Financial Services Forum President and CEO Kevin Fromer spoke to “Banking with Interest” host Rob Blackwell to discuss the potential implications of a proposal to increase capital requirements for the largest U.S. banks. Fromer highlighted in the Intrafi podcast how higher requirements would push activities outside the regulated banking sector, harm consumers and businesses, and reduce the competitiveness of the U.S. economy.
“You have to go back to the why — why do you need to constrain banks and their customers?” Fromer said. “There are real world impacts of these decisions.”
(Click Here to Listen to Interview)
Following are highlights from the interview:
On the Migration of Risks in the Financial System:
“You could be making the banks incrementally safer and you could be making the rest of the financial system less safe. You could be creating a situation where there’s more risk migrating outside of the banks and into the nonbank sector. That hasn’t been covered off by regulation, that is something that regulators here and at the international level are struggling with right now.
“And I don’t think the next significant crisis that relates to the financial system is going to emanate from the banking sector. It’s going to emanate from that less regulated, nonbank sector. So I think that is a broad concern. In other words, what kind of a financial system do you want? What kind of a banking system do you want? Is it right for our system here in the United States? Does it help ensure that we are competitive as a nation over the long term? Those are the kinds of questions that you have to think about when you’re presented with a proposal that seems to unnecessarily raise capital.”
On the Cost of Higher Capital Requirements:
“None of these institutions and their leaderships are at all complacent,” Fromer said, noting the support the largest U.S. banks have provided the broad economy. “I think they’ve been very assertive during times when the country needed to have the support of the banking system, to offer that support and to be strong enough to offer that support. I think that’s the broad concern, why are we raising capital to this extent for purposes of meeting this international standard? Are we doing so contrary to the implementation designs of other jurisdictions … and what is the cost of this type of proposal to the consumers, the businesses, the institutional investors in this country? And just broadly, (for) the economy at large, is this a sensible thing to do right now?”
On the Gap Between U.S. and EU Implementation:
“There’s no question that a Basel process that was intended to create a level playing field with respect to capital requirements has quite perversely resulted in an unlevel playing field. And that system, to me, seems broken when we have those kinds of outcomes. The U.S. proposal that we’re dealing with right now is again going to build on that trend where the U.S. is proposing to be super equivalent, to have rules in place for its institutions that exceed the standard in the Basel 3 Finalization proposal coming out six years ago. So we’re going to go from an unlevel playing field to an even wider gap, wider spread, more unlevel playing field.”
On the Lack of Connection to the Midsize Bank Turmoil:
“I don’t think there’s any relationship whatsoever between what happened to the regional banks and Basel 3 Finalization. There’s literally no nexus.”
Please see the Forum’s fact sheet for more information on capital and the largest U.S. banks and the potential impact of the regulators’ capital proposal.
Learn more, including what policymakers and others have to say about the strong capital positions at the largest U.S. banks, at smartbankcapital.com.
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The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of 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.