Oct 4 A group of former regulators is calling for tighter rules on U.S. financial institutions than required under proposed international standards designed to prevent another global financial crisis.
The Systemic Risk Council, led by former Federal Deposit Insurance Corp Chairman Sheila Bair, in a letter on Thursday urged top U.S. regulators to implement so-called Basel III standards more quickly, to include a stricter limit on leverage in large banks and reduce the exposure of banks to each other.
"These are good minimum standards that can and should be exceeded," Bair and a host of former U.S regulators wrote to Federal Reserve Chairman Ben Bernanke, Comptroller of the Currency Thomas Curry and acting FDIC Chairman Martin Gruenberg. The letter was seen by Reuters.
The Systemic Risk Council is an independent, non-partisan group formed by The Pew Charitable Trusts and the CFA Institute. Its members include former Fed Chairman Paul Volcker, former Citibank chairman John Reed and former Securities and Exchange Commission Chairman William Donaldson.
U.S. regulators in June proposed rules for implementing Basel III standards that require banks to hold a bigger cushion of capital to absorb losses. The proposed standards are to be phased in gradually by the beginning of 2019, but the council urged a "significantly shorter" timetable.
The council also said that the rules should do more to prevent the interconnectedness of financial institutions, which it said became one of the major reasons cited for government bailouts during the financial crisis.
The group also wants a stricter leverage ratio, which would limit banks' assets to 12 times their capital rather than 33 times their capital.
In another suggestion, the council discouraged the use of complex modeling methods to determine capital requirements for what it called troublesome transactions such as over-the-counter derivatives.
"Complex models are prone to failure as evidenced by the recent and mounting losses from the 'whale' trading at one of the largest and well-managed U.S. banking organizations," the letter said, referring to a trading scandal revealed by JPMorgan Chase & Co in May.
The Financial Times reported the letter earlier on Thursday.