Wednesday, November 7, 2012

Sheila Bair Has No Clue How the Banking Industry Works

Sheila Bair seems to think that the new Basel III requirements—which, for example, mandate banks’ tangible common equity eventually rises to 7%, up from 2% now—aren’t stringent enough.

A top U.S. banking regulator said she expects large U.S. banks will have to meet stricter capital requirements than specified in the new international rules known as Basel III.

"I have fairly high confidence there will be higher capitalization requirements for systemic institutions," or large U.S. banks, said Sheila Bair, head of the Federal Deposit Insurance Corp, speaking at Harvard University on Wednesday evening.

The new international capital rules known as Basel III, recently agreed to by regulators from 27 countries, call on major banks to maintain tangible common equity levels of 7 percent by 2019, up from 2 percent currently. . . .

"The standards aren't as high as many of us would have liked, but they are a big, big improvement," she said. She added that "I do not agree the new requirements will reduce the availability of credit or raise borrowing costs," as some critics have charged.

Wait a minute. If Bair wants to hold U.S. banks to even higher standards than Basel, why did the U.S. go to the time and trouble to negotiate the new standards in the first place? . . . .One gets the sense that, to Bair, no capital level is high enough and that, if she had her way, banks wouldn’t be allowed to borrow money at all. And if she really believes the new, higher capital levels won’t “reduce the availability of credit or raise borrowing costs,” she’s truly delusional. What a disaster of a bank regulator. .

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