WASHINGTON — The outcome of a bank's supervisory examination should be among the factors determining its minimum capital requirements, according to Federal Deposit Insurance Corp. board member Thomas Hoenig.
In a speech Friday, Hoenig called for more thorough exams of larger banks, and recommended tying minimum capital levels to a bank's Camels rating. He also reiterated support for requiring "tangible" capital to meet such requirements.
"For example, a 10% minimum tangible capital ratio would be adequate for a 1-rated bank, while a bank whose risk profile is 2-rated might require a higher ratio, say 11%, and similarly a 3 rating might require, say, 13%," he said in remarks prepared for the speech. Hoenig, whom senators confirmed to be FDIC vice chairman on Nov. 15, addressed a joint New York conference of the American Institute of CPAs and the Securities Industry and Financial Markets Association.
Hoenig said such a method, which would emphasize more detailed exams, would affect the largest banks most, since "full-scope" exams for bigger institutions "have been de-emphasized in favor of targeted reviews, financial statement monitoring, model validations and, more recently, the use of stress tests.
"These activities can be useful, but they are limited in scope and have been adopted because the largest firms are judged simply too large and complex for full scope examinations," he said. "However, full exams are doable. Statisticians, for example, have long been designing sampling methodologies for auditing and examining large bank asset portfolios and other operations, providing reliable estimates of their condition, and at an affordable cost."
