Maxine Waters fires warning shot over SLR exemptions
11 March 2021 US
Image: stock.adobe.com/Stuart Monk
US House representative Maxine Waters has implored various federal financial bodies and President Biden to not let Wall Street off the hook and reinstate pre-COVID regulations.
Waters — chair of the House Committee on Financial Services — along with 18 colleagues has urged the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency to allow temporary supplementary leverage ratio exemptions (SLR) to lapse.
Reducing bank capital requirements, including extending the temporary exclusion of the US Treasury securities and deposits at Federal Reserve Banks from the SLR, would risk the “safety and soundness” of the nation’s financial system, Waters writes in a letter to regulators.
The SLR suspension that came into effect in April last year is “a mistake that should not be perpetuated after it expires at the end of this month” and meant that global systemically important banks (G-SIBs) reduced their tier-one capital requirements by approximately $72 billion, Waters says.
“These are all regulatory matters I highlighted for President Biden and urged his appointees to rescind or otherwise reverse as soon as possible.” Waters also implored the various federal financial bodies to avoid introducing any other reforms that would weaken banking capital and leverage requirements, citing research that demonstrates an increase in capital is associated with an increase in loan growth. “Well-capitalised banks can serve as a source of strength for the economy in good times and bad,” Waters says.
FDIC board member Martin Gruenberg explained at the time the SLR exclusions were granted last year that “[n]ow is not the time to significantly reduce the capital of the most systemically important U.S. banks in order to facilitate financial market liquidity.
“We learned the hard way during the 2008 financial crisis the importance of preserving loss absorbing leverage capital at systemically important banks.”
Elsewhere in her letter, Waters says the uncertainty of the months ahead mean “it is crucial that regulators remain vigilant”, and oblige the largest banks to maintain loss-absorbing capital to guard against risks.
Waters urged the agencies to stop “weakening bank requirements” and emphasised the need to make the financial system resilient as it weathers the remainder of the pandemic and related economic recovery.
“If capital requirements were of concern,” Waters writes, “then it is unclear why your agencies would allow banks to continue making capital distributions through dividend payments and discretionary executive bonus payments.”
Citing one source, Waters argues that suspending bank dividend payments could preserve roughly $40 billion of capital per year.
Waters goes on to question why government agencies gave Wall Street a “$40 billion gift by eliminating initial margin requirements for inter-affiliate swaps during the pandemic”.
She concludes with a warning shot: “It is past time that your agencies stop prioritising the wishes of Wall Street over the public good.”
Waters — chair of the House Committee on Financial Services — along with 18 colleagues has urged the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency to allow temporary supplementary leverage ratio exemptions (SLR) to lapse.
Reducing bank capital requirements, including extending the temporary exclusion of the US Treasury securities and deposits at Federal Reserve Banks from the SLR, would risk the “safety and soundness” of the nation’s financial system, Waters writes in a letter to regulators.
The SLR suspension that came into effect in April last year is “a mistake that should not be perpetuated after it expires at the end of this month” and meant that global systemically important banks (G-SIBs) reduced their tier-one capital requirements by approximately $72 billion, Waters says.
“These are all regulatory matters I highlighted for President Biden and urged his appointees to rescind or otherwise reverse as soon as possible.” Waters also implored the various federal financial bodies to avoid introducing any other reforms that would weaken banking capital and leverage requirements, citing research that demonstrates an increase in capital is associated with an increase in loan growth. “Well-capitalised banks can serve as a source of strength for the economy in good times and bad,” Waters says.
FDIC board member Martin Gruenberg explained at the time the SLR exclusions were granted last year that “[n]ow is not the time to significantly reduce the capital of the most systemically important U.S. banks in order to facilitate financial market liquidity.
“We learned the hard way during the 2008 financial crisis the importance of preserving loss absorbing leverage capital at systemically important banks.”
Elsewhere in her letter, Waters says the uncertainty of the months ahead mean “it is crucial that regulators remain vigilant”, and oblige the largest banks to maintain loss-absorbing capital to guard against risks.
Waters urged the agencies to stop “weakening bank requirements” and emphasised the need to make the financial system resilient as it weathers the remainder of the pandemic and related economic recovery.
“If capital requirements were of concern,” Waters writes, “then it is unclear why your agencies would allow banks to continue making capital distributions through dividend payments and discretionary executive bonus payments.”
Citing one source, Waters argues that suspending bank dividend payments could preserve roughly $40 billion of capital per year.
Waters goes on to question why government agencies gave Wall Street a “$40 billion gift by eliminating initial margin requirements for inter-affiliate swaps during the pandemic”.
She concludes with a warning shot: “It is past time that your agencies stop prioritising the wishes of Wall Street over the public good.”
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