Bipartisan pair of senators tells Bernanke to get tough on bank capital requirements

{mosads}While Democrats and Republicans continue to spar over a slew of provisions of the Dodd-Frank financial reform law, one area that has seen some bipartisan agreement is on the notion of heightened capital requirements for banks. As regulators and bankers were hauled before congressional panels in the wake of major banking scandals at JPMorgan and Barclays, a number of Republican lawmakers in both chambers said banks should be required to hold more capital as a strong foundation against risk, even as they critiqued the more prescriptive regulations of Dodd-Frank.

Meanwhile, liberal lawmakers like Brown have continued to push for the breaking up of the nation’s largest banks, and tough capital requirements could discourage some institutions from seeking to grow as much as possible if it meant setting aside more funds to guard against risk.

Currently, international regulators have reached a tentative agreement that would require these institutions to hold an extra 1 percent to 2.5 percent of capital, which would come on top of the 7 percent capital requirement for all banks. The Fed has yet to finalize its rules implementing that agreement. 

But the two lawmakers maintain that the Fed should view those figures as a bare minimum requirement, and pressed the Fed to adopt tougher capital standards for banks as they grow bigger and more interconnected in the financial system.

However, the two also warned that any surcharges should take into account whether a bank is at the center of the global financial system or servicing a regional area, contending that the added burden should be lightened for the latter, even if it is still deemed to be systemically significant.

“U.S. regulators must focus their efforts to impose enhanced capital requirements on the largest, most complex financial institutions, and not the smaller, regional institutions that engage in traditional banking services and whose systemic footprint is limited or inconsequential,” they wrote.