WASHINGTON -- The nation's largest banks are trying to scare the public about the impact of tougher capital requirements proposed by U.S. regulators, a top Federal Deposit Insurance Corp. official said Tuesday.
Requiring the eight largest banks to hold more high-quality capital as a cushion against losses won't constrain lending, said FDIC Vice Chairman Thomas Hoenig.
The rules proposed last month by the FDIC and other banking regulators are not onerous and are designed to protect Americans from another financial crisis, he said in an opinion article in the Financial Times.
"The largest banks are raising objections designed to scare the public and force a retreat from good public policy," Hoenig said.
The new rules would require Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and four other U.S. bank holding companies designated as "systemically important financial institutions" to each hold capital equal to at least 5% of their total assets.
On top of that, the firms' federally insured bank subsidiaries, such as Citibank and Chase bank, would have to hold capital equal to at least 6% of assets.
The requirements are higher than those for smaller U.S. banks and bank holding companies, which have to meet a 3% leverage ratio.
The tougher requirements for the largest banks are designed to protect the FDIC fund that covers most deposits when an institution fails as well as to shield taxpayers from any losses if one of the banks has to be seized and dismantled by regulators because an impending bankruptcy would damage the financial system and the broader economy.
Large banks have complained that the rules will force them to cut back on lending and hurt their ability to compete with foreign financial institutions.
But Hoenig dismissed those complaints.
He said an International Monetary Fund report found no evidence that past higher capital requirements have hurt lending over the long term at the largest banks, and that such rules make those banks better able to make loans when times are tough.
"The public should not accept the liability associated with a highly leveraged banking industry as the price of credit and economic growth," he said. "Indeed, banks with thick capital cushions are better able to maintain lending during a crisis -- a key factor influencing the speed of the recovery."
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