Fed governor Dan Tarullo’s speech Friday on bank capital and regulation could well invigorate the same amount of public discussion as Jeremy Stein’s speech on the role of monetary policy and asset bubbles did.
Tarullo’s comments that the Basel III leverage ratio was perhaps “set too low” and that he might prefer tougher capital standards for the largest banks are likely attract particular attention.
For the tl;dr version, we recommend Tom Braithwaite in the FT:
In a speech in Washington, Mr Tarullo also floated a new idea of additional capital requirements above and beyond the levels agreed by international regulators in the Basel III deal.
He said one possible route was to require “higher levels of capital for large firms unless their liquidity position is substantially stronger than minimum requirements”.
That would allow banks that fund themselves with liquid instruments to avoid injecting more capital into their business. Banks complain that ever-higher capital requirements are dampening profits and could constrain lending.
Again, this will continue to be picked over, especially given the ongoing debate about Brown-Vitter and Too Big to Fail generally, but for now we just wanted to draw readers’ attention to it (pdf version):
