John Walsh, acting U.S. comptroller of the currency, said “overly stringent” capital and liquidity requirements on banks risks pushing lending to less-regulated markets.
“We have to be able to figure out how far is too far, and when to stop,” Walsh said today in remarks prepared for delivery at a conference in London. “Pushing certain ‘risky’ activities outside of banks doesn’t make that risk disappear.”
Global regulators at the Basel Committee on Banking Supervision agreed last year to raise the minimum common equity requirement for banks to 4.5 percent from 2 percent, with an added buffer of 2.5 percent, for a total of 7 percent of assets weighted for risk. Basel members also are proposing that so-called global systemically important financial institutions, or SIFIs, hold additional capital buffers.
Federal Deposit Insurance Corp. Chairman Sheila Bair has supported international efforts to impose tougher capital rules on SIFIs to avoid a repeat of the market turmoil that followed the 2008 bankruptcy of Lehman Brothers Holdings Inc.
“I am concerned, in light of recent experience in the United States, that the application of overly stringent regulatory requirements of all types may again cause lending to move from the regulated banking sector into other less-regulated sectors,” Walsh said. That may “reduce the effectiveness of the enhanced bank regulation and supervision we are working so hard to implement,” he said. Wall Street banks are lobbying to limit how much capital they would be required to hold as regulators weigh whether such buffers are the best way to avert another financial crisis.
In the past few weeks, Citigroup Inc. Chief Operating Officer John Havens and executives from JPMorgan Chase & Co. and Bank of America Corp. discussed capital charges with lawmakers, according to people with knowledge of the discussions. Bank lobbyists gave the Financial Services Forum, a lobby group, points to raise with lawmakers, said the people, who declined to be identified because the talks weren’t public.
“If we draw the circle too narrowly around what we call ‘banking,’ we will unnecessarily restrict legitimate banking activity and raise its cost,” Walsh said.
Walsh oversees the Office of the Comptroller of the Currency, an independent unit within the U.S. Treasury Department that supervises more than 1,400 national banks. He became acting comptroller when John Dugan stepped down after the Dodd-Frank financial regulatory overhaul was enacted in July.