U.S. FDIC's Gruenberg joins call for higher bank capital

WASHINGTON Wed May 15, 2013 4:30pm EDT

WASHINGTON May 15 (Reuters) - Limits on how much banks can borrow may need to be tougher, a top U.S. banking official said on Wednesday, the latest in a growing group of regulators to call for big banks to set aside more equity to fund their business.

Martin Gruenberg, chairman of the Federal Deposit Insurance Corp, said that while the global bank capital accord known as Basel III largely focuses on the level of risk in banks' assets, the 2007-09 financial crisis has shown it may be necessary to lift the ratio of how much equity capital banks must hold compared to their total assets.

"There may be reason to look at ways to strengthen the leverage ratio as well," Gruenberg said.

During the 2007-09 crisis, many large banks needed costly taxpayer bail-outs.

Bank regulators have not finalized the U.S. version of the Basel rules, which determine the amount of capital banks must hold in part by considering the riskiness of their assets.

But as regulators appear to be nearing the end of their work on the rules, a growing group of top officials has hinted that the final requirements could involve boosting the leverage ratio for some institutions.

Several regulators, including Federal Reserve Governor Daniel Tarullo, have said the 3 percent leverage ratio under the Basel agreement may not be high enough.

Two U.S. senators, Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican, have introduced a bill that would throw out the risk-based requirements altogether and set capital ratios for the biggest banks at 15 percent, something that banks say could force them to carve up their businesses.

Regulators also have said they may set minimum requirements for how much long-term debt banks must raise at the holding company. Gruenberg said this debt could help facilitate the resolution of a massive, failed bank because it would be part of a loss-absorbing cushion.

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