Thomas Hoenig, the director of the Federal Deposit Insurance Corp., said on Friday that the U.S. should reject “arcane and complicated” Basel III capital reforms if sweeping changes to the rules are not made.
“I believe the [Basel] Committee [on Banking Supervision] should delay implementation and revisit the proposal,” Hoenig said, Reuters reports. “Absent that, the United States should not implement Basel III but reject the Basel approach to capital and go back to the basics.”
Hoenig blasted past and current Basel rules, saying that Basel III “continues an experiment that has lasted too long.”
“The poor record of Basel I, II and II.5 is that of a system fundamentally flawed,” Hoenig said, according to The Wall Street Journal. “Basel III is a continuation of these efforts, but with more complexity. It turns out that the Basel capital rules protected no one: not the banks, not the public, and certainly not the FDIC that bore the cost of the failures or the taxpayers who funded the bailouts. The complex Basel rules hurt, rather than helped the process of measurement and clarity of information.”
Basel III rules will be phased in over the course of six years beginning in January and will require banks to increase their capital levels by approximately three times the levels required under Basel II. Hoenig said the “enormously complicated” rules would lead to malfeasance.
While banks worldwide supported increasing capital requirements, larger institutions maintain that the agreement goes too far, and community banks say the basic framework does not work for their institutions.
“Director Hoenig is expressing what thousands of bankers have also recognized: That applying the International Basel standardized capital rules to all banks, in a one-size-fits-all manner, is a bad fit for most if not all U.S. banks,” Wayne Abernathy, the executive vice president of the American Bankers Association, said, Reuters reports.
Hoenig also proposed an alternative to Basel rules — an equity to tangible asset ratio — saying that it would be a more objective standard that would better reflect a bank’s ability to handle loss during tough economic times.
Hoenig is just one regulatory push-back for the Basel Committee on Banking Supervision. Another regulator, Andrew Haldane, the director of financial stability at the Bank of England, also questioned Basel reforms, saying that the rules may be too complicated to work effectively, according to Reuters.
The rules include one that will force banks, beginning in 2015, to build a buffer of liquid assets that would allow the institutions to weather a month-long market shock without any assistance.