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Fed Vice Chair Janet Yellen touched on a variety of regulatory issues during her lengthy confirmation hearing, including the Volcker Rule, efforts by regulators to be more transparent, and how to supervise systemically important nonbank firms.
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A proposal by U.S. regulators to raise the leverage ratio at the biggest bank holding companies and their subsidiaries is already drawing fire from both sides of a raging debate about how high capital requirements must be to ensure no institution poses a systemic risk.
July 9
WASHINGTON A bipartisan group of lawmakers is urging regulators to strengthen their proposed supplementary leverage ratio for the largest banks in order to help eliminate concerns over "too big to fail."
Regulators at the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency proposed in July that the biggest bank holding companies meet a 5% leverage ratio and their insured subsidiaries a 6% ratio. The proposal has drawn fire from both sides, with some regulators and lawmakers arguing those figures should be even higher.
Sens. Sherrod Brown, D-Ohio, Carl Levin, D-Mich., and David Vitter, R-La., told regulators in a letter Friday that while the plan "makes very positive steps in the right direction," it will "not provide adequate protection for taxpayers" without additional steps.
"We urge you, in the strongest terms possible, to consider a higher final leverage ratio," the lawmakers wrote to Ben Bernanke, chairman of the Federal Reserve, Martin Gruenberg, chairman of the FDIC, and Thomas Curry, Comptroller of the Currency. "We feel this proposal along with your proposal on a capital surcharge for the largest banks must move forward thoughtfully and aggressively."
All three senators have been at the center of the "too big to fail" debate this year. Brown and Vitter teamed up this spring to release a bill focused on raising capital levels, particularly at the big banks, while Levin spearheaded a congressional examination of JPMorgan's "London Whale" mess. As such, the lawmakers also offered several additional suggestions.
They urged the agencies to continue their focus on "real, loss-absorbing equity," noting that during the financial crisis investors ignored certain instruments considered Tier 1 capital but that would not adequately buffer against loss. They also argued that a company's assets should be measured "in the most comprehensive and straightforward way possible," absent efforts to "manage" or "optimize" risk weights, and that regulators should focus on measuring tangible common equity and total, non-risk-weighted assets.
"Rather than put our financial sector at a disadvantage, strong leverage rules will serve as a source of strength during turbulent times," the lawmakers said.
