WASHINGTON - Troubled institutions pose more risk to the insurance funds than regulators recognize, the Shadow Financial Regulatory Committee said Monday. Accordingly, it declared that capital minimums should be increased, Accounting rules do not force banks to mark all assets to market, so an institution's capital may be overstated, the committee said.
The group of academics, lawyers, and bankers suggested raising the total risk-based capital requirement for well-capitalized institutions to 11% from 10%. Adequately capitalized institutions would have to hold risk-based capital of 9%, up from 8%.
Because most banks' capital levels already exceed the minimums, few institutions would be hurt by the change, the committee said.
"The time to change these levels is when they're not binding the industry," said George G. Kaufman, co-chairman of the committee and a professor of business at Loyola University in Chicago.
Separately, the panel called for the repeal of the Bank Merger Act of 1960, which exposes applicants to extensive review by banking regulators.
Bank mergers will continue to face antitrust scrutiny from the Justice Department, but should not be subject to burdens that other industries don't face, the committee said.
The panel opposed the Federal Deposit Insurance Corp.'s recent move to eliminate premiums for the healthiest banks. Paying for insurance, the committee said, imposes a deterrent to risk taking.
Additionally, bank directors should be required to hold as much as $50,000 worth of an institution's stock, the panel said. Currently, directors are required to hold stock worth $1,000.
