Don’t Weaken Post-Crisis Rules, Departing FDIC Chief Warns

By Jeff Bater

A top banking regulator whose term ends this month called for “continued vigilance” and warned against weakening post-crisis capital and liquidity safeguards for big banks.

Martin Gruenberg, who heads the Federal Deposit Insurance Corporation, expressed concern about the idea of removing central bank exposures, Treasury securities, and initial margin from the calculation of the Enhanced Supplementary Leverage Ratio and lowering the ratio.Such changes could cut the leverage capital requirements for the eight U.S. global systemically important banks by amounts ranging from 25 percent to more than 50 percent for some institutions, he said in remarks Nov. 14 at the Brookings Institution in Washington.

“Weakening the core reforms that apply to our largest banking organizations would increase the risk of future banking crises that would be very costly for the U.S. financial system and economy,” Gruenberg said.

Gruenberg said post-crisis changes could benefit from review, but expressed concern that changes to regulations could cross the line into substantial softening of requirements.

“Let’s be clear: Our largest banking organizations are not voluntarily holding the enhanced capital and liquid asset cushions required by current rules,” the FDIC chairman said. “Some have made quite clear that, left to their own devices, they would operate with less capital and less liquidity.”

Déjà Vu

Gruenberg has served on the FDIC’s board of directors since 2005 and began a five-year term as chairman in 2012. His term as chairman expires Nov. 29, but the Trump administration hasn’t yet nominated a replacement.

“Much has changed in banking and bank regulation since I started at the FDIC,” he said. “Yet, I confess to having a certain sense of déjà vu.”

Gruenberg said banking industry conditions are strong and the possibility of a serious downturn anytime soon is generally viewed as remote.

“That was certainly true during the pre-crisis years as well,” he added. “If I have one key point to make today, it is that we should guard against the temptation to become complacent about the risks facing the financial system.”

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