The biggest U.S. banks will end up facing leverage caps tougher than standards for their overseas rivals, top regulators said today at a hearing to update lawmakers on their rulemaking progress.
Officials from the Federal Reserve, Treasury Department and four other agencies presented a united front before Senate Banking Committee members, some of whom are seeking additional safeguards amid concern that the Dodd-Frank Act didn’t do enough to banish the notion that some banks are too big to fail.
“I don’t think we’ve ended the perception of too big to fail, but I think we’ve gone a long way to ending too big to fail,” Mary Miller, Treasury’s undersecretary for domestic finance, said in response to a question at the hearing. She and her fellow regulators agreed that measures already in progress, including leverage limits stricter than those called for in the Basel III accords, will curtail hazards to the banking system.
Miller, Fed Governor Daniel Tarullo and the heads of the Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., Securities and Exchange Commission and Commodity Futures Trading Commission were called to testify on their efforts to bolster financial stability in the wake of the 2008 credit crisis and protect customers’ financial data in light of recent breaches at companies including Target Corp. (TGT)
On the leverage-ratio issue, Tarullo, Comptroller of the Currency Thomas Curry and FDIC Chairman Martin Gruenberg said they will adopt international standards outlined last month to strengthen a U.S. rule. In addition, the regulators said they will keep the U.S. leverage ratio higher than that set by the Basel Committee on Banking Supervision.
“We will independently put in a higher leverage ratio than the international standard,” Tarullo said, calling it a “top priority in the near term.”
The U.S. leverage rule, proposed by the agencies in July, is one of the most significant unfinished initiatives to reduce risks that led to the 2008 credit crisis. It would impose minimums on how much capital eight of the biggest U.S. financial firms must hold as a percentage of assets on their books. The Basel accord has been weaker in its overall ratio -- 3 percent, as opposed to the U.S. proposal of 5 percent for bank holding companies and 6 percent for their banking units.
Senator Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican, in April introduced a bill that would impose even higher capital requirements on the largest banks. Senator Elizabeth Warren, a Massachusetts Democrat, and Senator John McCain, an Arizona Republican, have pushed a new version of the Glass-Steagall Act, the Depression-era law that separated commercial and investment banking.
Senators also pressed regulators for responses to recent data breaches at Target stores and other U.S. retailers in which financial information on millions of customers may have been put at risk.
Miller said it would be “very valuable to have comprehensive legislation on cyber security.” Curry said retailers may need new breach notification requirements beyond those requiring financial companies to notify customers.
“We probably need some uniform requirements on disclosure when breaches have actually taken place,” Tarullo said.
While bank regulators require notifications about breaches, the approach isn’t universal, according to the Fed governor.
“Until the banks and customers are assured that they know whenever anything has happened with their data, it’s going to be hard for people to respond,” he said.