There are ways to reduce complexity for banks and supervisors that will result in improved application of the regulatory principles involved. We need to begin that conversation. If not, we may find ourselves with a regulatory program that in practice is too complex to realize the supervisory success to which we all aspire.
Over the past several years, new prudential regulations have required banks to keep a higher level of capital in reserve, which Abernathy pointed out leaves banks with less available money to meet the needs of their customers. Abernathy said,
While adequate capital allows a bank to expand its activities, excessive capital requirements mean pulling even more money out of circulation to provide the same amount of financial services.
With the nation’s largest banks tracking more than a dozen different capital requirements, Abernathy questioned whether all capital measures have equal supervisory value, and suggested that if not, regulators might improve efficiency by focusing on those measures that provide the most value to prudential supervision.
Specifically, ABA recommended that regulators recognize highly capitalized banks as already meeting Basel III capital standards without having to go through the complex Basel III calculations; involve the public, Congress and affected industries through the publication of an advanced notice of proposed rulemaking before starting international negotiations on financial standards; withdraw the proposed rules implementing the Basel NSFR liquidity regime; and, with respect to the treatment of trust preferred securities under Basel capital rules, hold existing TruPS issuances and investments harmless, which was Congress’ intent in the Dodd-Frank Act.
Read Abernathy's testimony.