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RELEASE: The Federal Reserve's Actions Today Lowering Capital Requirements are Dangerous, Unwise, Unnecessary and Poorly Timed

FOR IMMEDIATE RELEASE
Wednesday, March 4, 2020
Contact:  202-618-6433, press@bettermarkets.com

Washington, D.C.  –  Dennis M. Kelleher, President and Chief Executive Officer of Better Markets, issued the following statement regarding the Federal Reserve Board’s finalizing a rule regarding the stress capital buffer and related matters:

“The only thing that stands between a failing bank and a taxpayer bailout is the amount of capital a bank has.  It is the shock absorber for banks to withstand an economic downturn or financial crisis without taxpayer bailouts.  That is particularly important at the biggest, most dangerous Wall Street banks that engage in the highest risk activities.  Their lack of capital in 2008 put them at the brink of bankruptcy, collapsed the financial system, and almost caused a second Great Depression.  That lack of capital is what forced taxpayers to bail them out with trillions of dollars during the financial crash. 

“Today’s actions by the Federal Reserve Board, which are going to substantially lower the amount of capital in the banking system, are dangerous, unwise, unnecessary and poorly timed.  At this very late stage in the business cycle, when leverage is at or near all-time highs in many sectors and the U.S. is facing unprecedented uncertainty and economic dangers from a possible global pandemic, capital requirements should be increased, not decreased.  Moreover, with banks reporting record revenues and profits and increasing their capital distributions year-after-year, lowering capital requirements cannot be justified.

“It is misleading in the extreme to defend the rule changes by saying ‘large banks have substantially increased their capital since the first round of stress tests in 2009.’  That was when the banks were effectively bankrupt, and their capital was at historic lows.  The metric must be how much capital banks need to support the economy and avoid bailouts in the future, not that they have more now than when they were on their deathbed, only to be saved by taxpayers.  As Governor Brainard detailed, the capital reductions are significant and meaningful.  As a result, the banks and the banking system are going to be more fragile, less stable and less able to withstand future shocks and crises. Worst of all, the banks with lower capital are going to be more likely to seek taxpayer bailouts in the future.”

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.

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