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
"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.