Bipartisan Group Of Senators Urges Financial Regulators To Prioritize Rules And Regulations That Help End “Too Big To Fail”

Tuesday, April 9, 2013

Senators Bob Corker, R-Tn., Sherrod Brown, D-Ohio, Elizabeth Warren, D-Mass., David Vitter, R-La., and Susan Collins, R-Maine, on Tuesday wrote to Federal Reserve Governor Daniel K. Tarullo, Comptroller of the Currency Thomas Curry, and Chairman of the FDIC Martin Gruenberg, urging them to “proceed deliberately and expeditiously” to finalize rules regarding capital requirements for large financial institutions and to ensure that should a large institution fail, the losses associated with the failure can be absorbed by its own shareholders and creditors.

Their letter states, “By acting to substantially strengthen capital requirements and to ensure that future losses of a large bank failure will be absorbed by its shareholders and unsecured creditors, you [financial regulators] will further your statutory mandate to protect the public against financial instability and go a long way toward ending too-big-to-fail.”

A complete copy of the letter follows:

“Dear Governor Tarullo, Comptroller Curry, and Chairman Gruenberg:

“As you know, the debate over ending too-big-to-fail continues to draw public attention and concern.  In this regard, we urge you to proceed deliberately and expeditiously with the following measures:

“Bank Capital: Numerous studies have shown that regulator reliance on the internal models of large banks to determine the riskiness of the banks’ assets has led to wide variations in the amount of capital held by banks with similar portfolios.  Internal models can be inherently unreliable, and, of course, they rest on assumptions that often prove to be false, such as, most recently, the assumption that OECD member country debt is entirely risk free. 

“The Basel Committee agreed to an international leverage ratio in its 2010 Basel III capital accord to address weaknesses in the use of risk-based standards.  But this leverage ratio will only have meaning if it is sufficiently strong.  And just as importantly, while the use of asset risk weights makes some sense, we should not rely on them completely.  An appropriate minimum overall capital ratio in exchange for a reduced reliance on models would make sense.

“There is widespread, bipartisan agreement that excessive leverage played a major role in the 2008 financial crisis and ensuing need for taxpayer bailouts.  Constraining leverage through the use of a simple and effective leverage ratio would go a long way toward correcting deficiencies in the capital regulation of large, complex financial institutions that proved to be seriously over leveraged prior to the crisis. 

“In addition, we believe that we should not move forward with an overly complicated capital regime for smaller institutions.  As you know, community banks, for example, have very different business models than globally active financial institutions, and while there may be merit in improving the capital framework applicable to them, this should be a secondary priority to constraining leverage at the largest firms.  The new Basel III capital standards were designed for large, internationally active banks, as was appropriate. We urge you to complete work on capital standards for the largest banks before turning to the smaller institutions. Then, devise a simpler framework that, unlike the current proposals, will be within the reach and capabilities of community institutions.

“Enhanced Prudential Standards: Even with tougher capital standards, there is no guarantee that a large bank failure can be prevented in the future. As a consequence, it is imperative that you ensure that should a large institution fail, the losses associated with the failure can be absorbed by its own shareholders and creditors. These losses should not be forced on other members of the industry through special assessments, as DFA would require, or worse, despite the prohibition in DFA, on taxpayers.  The FDIC, working in consultation with the Federal Reserve Board and international regulators, is developing a new strategy for the orderly resolution of a large, internationally active bank which involves seizing control of its holding company.  However, to be successful, it is imperative that the holding company issue enough equity and long-term unsecured debt to absorb losses.  For this reason, commentators, including FDIC and Federal Reserve Board officials, have acknowledged the wisdom and need for requiring complex financial institutions to issue an appropriate amount of equity and long-term, unsecured debt at the holding company level, where investors and creditors clearly understand there is a risk of loss in the event of a failure.  We urge you to consider the vital step of having loss absorption capacity at the holding company level, as you draft rules for the regulation of large systemically risky firms.

“We understand that the financial regulators have had a daunting task in promulgating and finalizing the numerous regulatory provisions required by Dodd-Frank.  Given the many demands on your time and resources, some prioritization is obviously necessary.  As such, we ask that you move expeditiously in these two areas, given continued public concern over the dangers that large financial institutions pose to our banking system and to the overall economy.  By acting to substantially strengthen capital requirements and to ensure that future losses of a large bank failure will be absorbed by its shareholders and unsecured creditors, you will further your statutory mandate to protect the public against financial instability and go a long way toward ending too-big-to-fail.”



New Hamilton County Businesses

Here are the new business licenses from the County Clerk's office: 1016 ON NORTHSHORE LEOPOLDO  E ORMAZA SHORT TERM RENTAL 1016 MERONEY CHATTANOOGA TN 37405 3 MOVERS 1 TRUCK LLC MONTY  WILLIAMS MOVING COMPANY VARIOUS LOCATIONS CHATTANOOGA TN 37402 ACCESS CONTROL TECHNOLGIES, LLC SCOTT  UNDERBRINK LOW VOLTAGE INSTALLATION ... (click for more)

Chattanooga Chamber Calendar For Sept. 25-29

Here is the calendar for the Chattanooga Chamber of Commerce for Sept. 25-29: Tuesday, Sept. 26, Government Contracting: Managing the Maze to Get the Contract 9-11:30 a.m. BrightBridge Women’s Business Center: 535 Chestnut St., Ste. 161 Are you ready for government contracting? How to sell your products and services to federal, state and/or local governments. How to register ... (click for more)

State Finds Photos Of Guns Used In Lookout Valley Murders On Morse's Phone, But Defense Says It Got Evidence Too Late

Prosecutors said Monday that there were six photos on the phone of Derek Morse of guns tied to the murder of three people at a Lookout Valley trailer park. However, defense attorney Dan Ripper said the phone should have been checked out years ago - not on the eve of the trial. He said he got the photos last Monday - the day before jury selection began. Prosecutor Lance ... (click for more)

Opportunity Zone Begins Effort To Transform 12 Low-Performing County Schools

The Hamilton County Department of Education announced the new Opportunity Zone team that officials said "will ensure every student is post-secondary ready." The schools in this zone are: Brainerd High, The Howard School, East Lake Middle Academy, Dalewood Middle, Orchard Knob Middle, Barger Academy of Fine Arts, Calvin Donaldson Environmental Science Academy, Clifton Hills ... (click for more)

Titans Hide In The Locker Room

This Sunday, as has been widely reported, the Tennessee Titans and the Seattle Seahawks both chose to remain in their respective locker rooms during the playing of the National Anthem at Nissan Stadium.  Besides the fact that the NFL game operations manual has a rule regarding player behavior during the playing of the National Anthem which requires them to stand at attention ... (click for more)

Roy Exum - ‘Let’s Talk Real Life’

In mid-November of 2015, the Missouri football team very unwisely went on strike. A black student had refused to eat until a list of racially-based demands were met. Some on the football team were sympathetic and it quickly morphed into the biggest catastrophe in the annals of higher education. The university would lose hundreds of millions, athletic donations dropped 72 percent, ... (click for more)