US plan to ease banking rules goes too far: regulator

A US congressional plan to ease banking rules for some large institutions goes too far and could endanger the financial system, a leading bank regulator said on Tuesday. Large banks must hold more capital than their smaller peers to brace for a future economic shock but the proposal unveiled last week in the US Senate would exempt many leading lenders.
Specifically, the plan would allow banks with less than $250 billion in assets to shed some capital reserves and return that wealth to investors. Banks such as BB&T Corp, SunTrust Banks Inc and American Express Co are among those that would benefit from such a move. The existing threshold for banks that would face stricter requirements is just $50 billion.
Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC), said the plan goes too far. "I think $250 billion might go further than appropriate," Gruenberg told reporters. The 2007-2009 financial crisis proves that the failure of even a large, regional lender can help upend the financial system, Gruenberg said.
IndyMac, a mortgage lender based in California, went under in 2008 and was the most expensive bank failure in FDIC history with a $12 billion cost to the agency. The FDIC stands behind bank customers by insuring their deposits. Gruenberg spoke to reporters after a routine report showed bank profits on the rise.
Across the industry, profits rose 5.2 percent in the second quarter of 2017 from the same period in 2016, reaching $47.9 billion. The number of problem banks fell to 104, the lowest since the financial crisis, according to the Quarterly Banking Profile. On Tuesday, Gruenberg said his agency still stands behind a four-year-old standard meant to discourage a type of risky credit known as leverage lending.
An independent government review last month determined that Congress has the power to erase the leverage lending standards, which were issued as agency guidelines, but not formal regulations. The Government Accountability Office determined that guidance actually amounts to a formal rule, opening the door for a Republican-led Congress to repeal it. Lawmakers would have until early 2018 to challenge the guidance. But for now, it is still in place, Gruenberg said, pending a more thorough review of the GAO ruling. "We have not rescinded that guidance," he said.