“Strengthening Global Capital: An Opportunity Not To Be Lost” – Remarks by FDIC Vice Chairman Thomas M. Hoenig to the 22nd Annual Risk USA Conference, New York, NY
Momentum is developing within the Basel Committee to undermine measures that could increase bank capital levels, and some jurisdictions are threatening to walk away if the measures are thought too strict. The United States should avoid joining this race to the bottom. The benefits of stronger capital levels are evidenced in U.S. firms that have higher price-to-book ratios and that are viewed as the counterparty of choice among market participants.
Finally, while I have always been critical of the Basel risk-based capital framework, it does remain a principle tool in judging capital adequacy and, therefore, Basel III should be strengthened not compromised. Strengthening the framework, until recently, has been the common objective of global regulators as they increased the overall quality and quantity of capital within the risk weighted measure. In addition they increased reliance on the leverage ratio for judging the overall soundness of balance sheets. This sturdier framework will be significantly compromised if proposed changes to the leverage ratio and to Basel III are adopted. This short-term focus of the industry has been made a political mandate, but as regulators we are obligated to do better than that.