A leaked draft of the TBTF proposal being put together by Senators Sherrod Brown (D-Ohio) and David Vitter (R-La.) was evidently the cause of much mirth in big-bank circles. The proposal’s capital requirements were described as “comically high” by Rob Nichols of the Financial Services Forum, as quoted in Ben White’s Morning Money column on Politico.
But Tuesday’s column brought forth replies from a number of unamused observers. “The largest financial organizations contributed to the financial crisis because they were so poorly capitalized,” FDIC Vice Chair Thomas M. Hoenig commented. “Ask the eight million people who lost their jobs during the crisis how comical they think higher capital requirements are.”
Camden Fine of the Independent Community Bankers Association offered a riff on “John Kerry’s famous line: ‘They voted against [the Dodd-Frank Act] before they voted for it,” adding, “And that is really ‘comical’.”
AFR had this to say: “It’s not surprising that the Financial Services Roundtable would try to belittle the Brown/Vitter draft requiring additional capital, since it’s a lot more profitable for banks to get implicit backing from taxpayers than to raise their own capital from the private sector. But they shouldn’t be able to get away with the myth that additional capital would constrain bank lending.
“Capital requirements don’t place any restriction on the amount of lending banks can do. They simply require that this lending be funded by private sector risk capital so that taxpayers aren’t on the line if banks take losses. Especially since the Brown-Vitter proposal would give banks a full five years to raise the added capital, it makes no sense to argue that banks wouldn’t be able to lend. And the minimum capital levels in the draft are hardly ‘comical’ — they are in the ballpark of capital levels called for by experts like Sheila Bair, and below levels typically held by banks before the creation of the public safety net.”
“Wall Street’s bragging about having ‘record high’ equity ignores that it is still way too low to avoid another financial collapse or massive taxpayer bailouts,” said Dennis Kelleher of Better Markets.