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Bernanke and Bair Weigh In on Banking Reform

by Yoko Goto
Eyes On Wall Street |

On September 2, Ben Bernanke, the chairman of the Federal Reserve System, and Sheila Bair, the Chairwoman of the Federal Deposit Insurance Corporation, told the Financial Crisis Inquiry Commission that increased capital requirements are an important weapon in the fight against systemic risk. Their comments are not likely to be well-received by the international banking community.

Bernanke and Bair stressed that is was imperative that the Basel Committee on Banking Supervision, an international coordinating body of regulators, impose stricter standards on how much and what kind of capital banks should be required to hold. Bernanke explained that it was important that the increased capital requirements work in a countercyclical manner to better aligned with risk and to ensure that losses can be absorbed more effectively. This view has been met with considerable resistance from several E.U. members, and it remains to be seen whether the Basel Committee will have sufficient resolve to support meaningful reform.