FDIC says Basel proposals crucial for safe banks

LONDON, Aug 24 (BestGrowthStock) – Excessive bank leverage has had
a disastrous effect on the economy, a top U.S. bank regulator
said on Tuesday, defending a proposal by the Basel Committee to
reshape the financial system and avoid another credit crisis.

In a column for the Financial Times, Sheila Bair, chairman
of the Federal Deposit Insurance Corporation, said
strengthening bank capital is a crucial part of financial
reform.

“Cleaning up bank balance sheets and strengthening the
quality and quantity of capital will not be painless,” Bair
wrote.

“But if we fail to follow through in strengthening bank
capital, we risk… exposing the global economy to the onerous
and indefensible costs of another financial crisis.”

Under a proposal unveiled by the group of global banking
regulators on Thursday, investors other than ordinary
shareholders would take a loss before banks are bailed out by
taxpayers or fail. [ID:nLDE67I14A]

“What is really at play here is that some in the industry
are arguing their own self-interest,” Bair wrote, adding that
critics of higher capital requirements fail to account for the
social costs created by insufficient capital cushions.

“Higher capital requirements mean lower shareholder returns
and reduced compensation,” she said.

Bair called for a rational capital regime that extends
across the global financial system.

“If financial reform is about anything, it is about better
aligning incentives and internalising the costs of leverage and
risk-taking,” she wrote.

(Reporting by Karolina Tagaris; editing by Kazunori Takada)

FDIC says Basel proposals crucial for safe banks