Feb 25 The capital surcharges under consideration for the largest "systemically important" banks do not appear excessive and may in fact be too low, a top U.S. Federal Reserve official said on Monday in a strong defense of tough new financial regulations.
Boston Fed President Eric Rosengren, speaking in Seoul, cited the findings of an internal Fed study on capital buffers for so-called systemically important financial institutions, or SIFIs.
He argued such firms should face surcharges commensurate with how successfully a troubled bank would be able to wind itself down, without harming the broader financial markets or the economy.
Regulators globally are still crafting many of the new rules meant to avoid a repetition of the brutal 2007-2009 financial crisis. In the United States, where the crisis began, regulators like the U.S. central bank are still finalizing details around additional capital surcharges for SIFIs.
The reforms have drawn criticism from Wall Street and elsewhere that they risk overburdening banks with unnecessary rules that will only slow the tepid economic recovery from the recession that the crisis caused.
"Contrary to arguments put forth by some commenters, our results suggest that even under the current multi-pronged approach, the current calibration of the SIFI surcharge does not appear excessive," Rosengren said at a Bank for International Settlements forum, based on prepared remarks.
The Boston Fed study, which has not yet been fully released, looked at how 26 SIFIs would have performed through the financial crisis had they the capital levels that are now required.
It found that eight such firms would have suffered losses exceeding the capital buffers required by the international Basel III standards and that of the U.S. stress tests.
Given this finding, Rosengren said, the "minimum standards for large institutions may be too low." SIFIs that are difficult to resolve could receive a higher surcharge than "more easily resolvable" SIFIs, he added.
Rosengren, who did not comment on monetary policy, said he backed the "multi-pronged" approach of combining capital surcharges with liquidity standards, bank resolution plans, and the stress tests, in order to safeguard financial markets.