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Coronavirus should not be an excuse to substantially loosen big bank rules

Thought Leader: Sheila Bair
March 18, 2020
Source: Link

By Sheila Bair (original source Yahoo Finance) 

“Surely hell has a special place reserved for big bank advocates using a worldwide health crisis to pursue their deregulatory agenda. Witness a note issued by Bank of America on Tuesday calling for a weakening of financial regulations across the board — and pointedly, asking a panicky Congress to provide it, bypassing regulatory authorities who know better, or at least should know better. The BofA note — which echoes a whispering campaign being waged by big bank lobbyists — contains sweeping arguments to essentially undermine every meaningful reform implemented after the 2008 financial crisis.

But before addressing this unabashed promotion of self-interest by one of the country’s biggest banks, let’s start by acknowledging that there is a semblance of rationality underlying BofA’s arguments. During times of stress, it does make sense to temporarily loosen bank capital and liquidity rules. Indeed, the post-2008 crisis regulatory framework is designed to accomplish that result, without the need to resort to legislation. Both the liquidity rules (which require that banks keep a certain amount of highly liquid assets on their balance sheets) and the capital rules (which make banks more resilient by limiting the amount of debt banks themselves can use to fund themselves) have built-in buffers that are meant to be used in a downturn. And it may well be time for bank regulators to encourage banks to dip into those buffers. But the mechanisms are already in place for them to do so as regulators signaled this week.”

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