Bair Says U.S. Must Avoid Amnesia in Response to Crisis
Federal Deposit Insurance Corp. Chairman Sheila Bair strongly defended higher capital buffers for the biggest banks and said U.S. regulators must guard against pressure to be less vigilant in financial-industry oversight as the nation recovers from the 2008 credit crisis.
“I see a lot of amnesia setting in now,” Bair said today during a question-and-answer session at the Council on Foreign Relations in New York, where she discussed her tenure at the FDIC and the government’s response to the worst financial crisis since the Great Depression.
Bair was asked to respond after JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon, head of the most profitable U.S. bank, pressed Federal Reserve Chairman Ben S. Bernanke in a public forum on June 7 on whether regulators have risked slowing growth by going too far in reining in the U.S. banking system.
Regulators must look at the relationships among different rules and may have to phase in regulations on derivatives, Bair said in an acknowledgement of some agreement with Dimon. In other areas, such as a 3 percent equity capital buffer for systemically important firms, the new rules will help protect the financial system while allowing large banks to earn a reasonable return, she said.
“On obvious things like higher capital standards, I say full speed ahead and the higher the better,” Bair said. “Banks are not doing a lot of lending now, and the ones that are doing the better job of lending are the smaller institutions that have the higher capital levels.”
Financial companies and their lobbyists have pushed back against restrictions being crafted under the Dodd-Frank Act, the regulatory overhaul enacted last year in response to the 2008 credit crisis. The U.S. Senate yesterday rejected a bank-backed effort to delay caps on debit-card swipe fees that could cost banks including JPMorgan $12 billion in annual revenue.
Dimon asked Bernanke during a question-and-answer session at a bankers’ conference in Atlanta whether he’s concerned that overzealous regulation will stymie an economic rebound.
“I have a great fear someone’s going to try to write a book in 20 years, and the book is going to talk about all the things that we did in the middle of the crisis to actually slow down recovery,” Dimon said to the Fed chairman.
Regulators faced political pressure not to be vigilant in oversight before the financial crisis because banks were so profitable, and they failed to withstand that pressure, Bair said. Agencies now have to stand strong against accusations that the new rules will crimp lending, said Bair, who is leaving the FDIC next month after her five-year term ends.