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The Fed on Thursday issued proposals that would raise banks' minimum capital requirement to 7%.
June 7 -
The Basel Committee on Banking Supervision said it discovered deficiencies among the 27 member countries in how they were adopting Basel III.
June 11 -
2011 will be critical as regulators across the globe start the difficult task of implementing the new Basel III rules even while they tackle issues left unfinished by the agreement.
December 28
WASHINGTON — Although the Federal Deposit Insurance Corp.'s board voted Tuesday to release three proposals implementing the Basel III capital accord, two members said the plan does not go far enough.
Thomas Hoenig and Jeremiah Norton, the two newest directors on the board, echoed remarks by some Federal Reserve Board officials in saying the plan still needs work.
"I remain concerned that as proposed, the minimum capital ratios will not significantly enhance financial stability," said Hoenig, the outspoken former chief executive of the Federal Reserve Bank of Kansas City.
He questioned the continued reliance on risk-based capital, and the complexity of models used to gauge risk-weightings.
"While [regulatory] staff have developed detailed measures of risk, it is bankers and bank supervisors, those serving on the boards of banks and those in the field, who must understand them, implement them, and enforce them. Having read these drafts, I suspect that will be no easy task," Hoenig said. "The measures imply more accuracy than can be realized. Risks migrate from assigned levels, and formulas 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."
He said the regulators' required leverage ratios should also be higher.
"Because leverage is one of the primary factors that determines financial outcomes, I also am concerned that the minimum leverage ratios in the proposals are too low to be of real value in moderating future crises," Hoenig said.
Norton, a former Treasury Department official who was confirmed to the FDIC board with Hoenig in March, also questioned whether the proposed minimum capital requirements were high enough for the largest banks, and warned that certain proposed risk weightings may "not reflect sufficiently the inherent risk of default and loss given default."
"With regard to regulatory capital minimums, I am most encouraged by the fact that these rules provide for significantly more common equity in the numerator," he said. "At the same time, I am concerned that, especially for the largest and most complex institutions, the 7% common equity Tier 1 ratio might not be sufficiently high given the risks some entities pose to the system in extremis."
The two FDIC members ultimately voted to release the proposals for public comment, but their comments signal an uphill road before regulators can agree on a final rule.
The FDIC's move followed the Fed's signoff last week. The FDIC board also followed the central bank in finalizing market-risk regulations for banks with large trading books.
"The rules under consideration by the Board today are an important step in the direction of strengthening the capital requirements for banks in the United States," Martin Gruenberg, the FDIC's acting chairman, said at the agency's board meeting.
The proposals would essentially raise banks' minimum capital requirements to as high as 7%, require a common equity Tier 1 capital ratio of 4.5%, further revise risk weightings and subject institutions with substantial off-balance sheet activities to an extra 3% leverage ratio. The three proposals all allow the public 90 days to comment. The Office of the Comptroller of the Currency also signed off on the four items Tuesday.
