Outgoing U.S. Federal Deposit Insurance Corporation Vice Chairman Thomas M. Hoenig discussed the importance of attaining meaningful regulatory relief without undermining the safety and soundness of the financial system. Citing a few historical examples, Vice Chairman Hoenig discussed the similarities among past crises, as well as the deregulatory attitude that has followed these crises once the economy begins to recover. Vice Chairman Hoenig noted that with a strong regulatory foundation, including strong capital and constraints on the reliance on government bail-outs, a number of costly administrative rules could be minimized or eliminated. One important group of regulations that Vice Chairman Hoenig discussed for retention was prudential standards, including maintaining at least a 10 percent minimum equity to total assets ratio. Vice Chairman Hoenig was critical of proposed legislative changes to the calculation of the supplemental leverage ratio, and with U.S. financial institution regulatory agencies implementing the new Basel Committee standards and corresponding reduction in capital, cautioning that the “United States should not engage in this race to the bottom.” Vice Chairman Hoenig also cited the Volcker Rule, noting that it is an important concept that should not be eliminated for any group of banks. Instead, Vice Chairman Hoenig suggested possible means to simplify the reporting burden associated with the Volcker Rule, which he posited would reduce the regulatory burden of the Rule without having to carve out certain groups of financial institutions from compliance with the Rule altogether. Vice Chairman Hoenig asserted that with strong prudential standards in place, other regulatory burdens, such as the living will process, could be reduced. Vice Chairman Hoenig was critical of the living will process, noting that living wills do not provide much more information over and above that which is already gleaned from the examination and stress testing process. Vice Chairman Hoenig also highlighted that the living will process, through the prevalence of the single-point-of-entry resolution strategy among larger financial institutions, has reinforced the too-big-to-fail concept by signaling to creditors of those institutions that they will be able to exit their positions in the event of a failure. Vice Chairman Hoenig closed by stating that regional and community banks are better positioned for regulatory relief than larger financial institutions, noting that he has provided a list of regulations that could be simplified or eliminated for regional and community banks, such as liquidity rules, the Comprehensive Capital Analysis and Review process, appraisal requirements and examination cycles, some of which are already under legislative review.
View the full text of the Vice Chairman Hoenig’s speech.
