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A new report from the Bipartisan Policy Center backs the Federal Deposit Insurance Corp.'s "single-point-of-entry" strategy, but says congressional changes to the bankruptcy code could also do the trick.
May 14 -
Top Federal Reserve Board officials appear to have reached a consensus on how to deal with the "too big to fail" dilemma: wait for the current reform process to play out, but be ready to significantly increase capital standards if the problem remains unsolved.
May 14 -
International regulators and the institutions they supervise are objecting to a proposal by the Federal Reserve Board that would toughen oversight of foreign institutions operating in the U.S.
May 9 -
The agencies appear to be at loggerheads over a final Basel III deal, with the Federal Deposit Insurance Corp. pushing for a higher leverage ratio but facing resistance from the Federal Reserve Board and the Office of the Comptroller of the Currency.
May 2 -
Two Federal Deposit Insurance Corp. board members are urging policymakers to strengthen a leverage ratio that would be applied to banks of all sizes before regulators finalize the U.S. version of Basel III rules.
April 8
WASHINGTON Federal Deposit Insurance Corp. Chairman Martin Gruenberg indicated Wednesday that he was open to raising the leverage ratio for the largest banks as part of implementing global capital rules, moving himself closer to the views of other top agency officials who have already expressed public support for a higher ratio.
Gruenberg briefly addressed the issue in response to a question during an appearance before the Exchequer Club, saying that Basel's emphasis on improving the amount and quality of capital necessitates a review of the leverage ratio.
"In light of that, there may be meaningful ways to strengthen the leverage ratio as well," he said.
Bank regulators are still negotiating over the leverage ratio limits that should be included in the final Basel III package. Under a June proposal, all banks would face a 3% leverage ratio, with the largest institutions required to hold a supplemental 3% in addition.
Gruenberg's comments suggest that he agrees with three fellow FDIC board members. FDIC Vice Chairman Thomas Hoenig, Jeremiah Norton, an independent member of the agency's board, and Comptroller of the Currency Thomas Curry have expressed support for a higher leverage ratio.
Regulators may differ, however, on how high they want that figure to go. Hoenig has pushed for a 10% leverage ratio, but the other regulators have refrained for suggesting a specific number. (The fifth FDIC board member, Consumer Financial Protection Bureau Director Richard Cordray, has not expressed an opinion, but is likely to go along with whatever Gruenberg and the other banking regulators decide.)
In his remarks, Gruenberg also said the FDIC has expanded international talks with foreign regulators on coordinating resolution regimes to include Switzerland and Japan.
The talks with Switzerland home to both Credit Suisse and UBS, two firms flagged by regulators for their systemic significance which also have U.S. operations supplement ongoing FDIC efforts to open communication channels with European regulators. To date, most of the agency's efforts on the European continent have focused on the United Kingdom, where nearly 70% of the foreign operations of U.S. firms are based.
But Gruenberg said the Swiss like officials in the United Kingdom have embraced the same approach favored by the FDIC for planning wind-downs of behemoths. The agency has embraced a model known as single point of entry whereby a holding company is closed and its remaining debt helps capitalize a bridge firm that would house its healthy subsidiaries.
"We have been engaging actively with the Swiss authorities," Gruenberg said in his prepared remarks. "As you know, Switzerland is the home country for two of the global" systemically important financial institutions, "both with significant operations in the United States. The Swiss authorities are also working off of the single point of entry approach as their key resolution strategy. So that relationship is also working out quite well, and I think there is actually potential for the U.S., the UK and the Swiss to collaborate together on cross-border resolution."
He added that staff level talks are also proceeding between FDIC officials and regulators in Japan, and he is "hopeful" he will meet with principals of the Japanese authorities later this year. The agency has also begun efforts to develop coordination with the European Union.
With open engagement between the U.S., U.K., Switzerland, Japan and the EU, "you have the home jurisdictions of 27 of the 28 global SIFIs identified by the Financial Stability Board," Gruenberg said.
Gruenberg was also asked for his position on various proposals to reform the bankruptcy code as a means to more effectively resolve failed financial institutions. While not commenting specifically on those proposals, he noted that, despite the new powers granted to the FDIC under Dodd-Frank to resolve troubled megabanks, bankruptcy is still the preferred option in most cases.
"Any financial institution failure that the bankruptcy courts can handle that the FDIC does not have to handle is a good thing," he said.
He also repeated the FDIC's support for better understanding community banks and considering steps regulators can take to make the supervisory process more efficient for smaller institutions. He said that even though community banks find challenges to deriving interest income, the sector by and large has coped well with challenging conditions.
"Net interest margins have been compressed and loan demand has been relatively weak. And yet even in that environment the vast majority of community banks have been able to work their way through it," he said.
