Citigroup Chairman John C. Dugan joined American banking executives who negatively assessed the plan of the United States authorities to introduce new capital requirements.
During a conversation with media representatives, the head of the Board of the mentioned multinational banking and finance corporation said that the decision to tighten the rules on the amount of capital that banks must own will have consequences in the form of reduced lending opportunities.
John C. Dugan says that the initiative of the American government will significantly affect the scale of lending. According to him, in this case, the capabilities of companies that provide relevant financial services will be limited, which is an unfavorable factor affecting the economic system of the United States, which is currently in a dangerous state.
At the same time, John C. Dugan noted that the giants of the American banking sector, including Citi, are strong in point of security and reliable in terms of capital and liquidity.
The chairman of the board of one of the largest creditors of the US described the initiative of the local authorities as somewhat strange. In his opinion, the proposed increase in capital requirements as a reaction to the bankruptcy of three regional financial institutions at the beginning of this year raises questions. The new rules stipulate that the eight largest American banks, including Citi, will have to increase their capital by about 19%.
John C. Dugan’s position on the initiative of the authorities regarding the financial industry is largely similar to the opinion of JPMorgan Chase CEO Jamie Dimon, who said that the intentions of regulators could cause a slowdown in economic growth and reduce the availability of loans and mortgages. Mr. Dimon, while talking to reporters, stated that the increase in capital requirements could potentially take all mortgages and loans to small businesses outside the banking sector. He also noted that the authorities should inform the public in more detail about their plans in the financial industry.
Capital requirements were the subject of hearings of the House of Representatives Subcommittee on Financial Services, Financial Institutions, and Monetary Policy. Republican lawmakers have expressed disagreement with the proposed innovations. Andy Barr, who heads the aforementioned subcommittee, said that the draft capital requirements were developed in a hurry and are not well thought out. He also noted that in some aspects the new rules are capricious and blatantly arbitrary.
Michael Barr, vice chairman of the Federal Reserve for Supervision, argues that the proposed capital requirements will increase the level of security of the US financial system. He also said that the new rules will raise capital for large banks. At the same time, Michael Barr says that innovations will entail an increase in financing costs, but this is only part of the consequences. According to him, capital allows banks to cover more losses and at the same time not jeopardize the ability to pay off creditors.
Rob Nicholls, president of the American Bankers Association, said that arbitrary asset thresholds and changes that were not justified by rigorous data and evidence are a mistake that complicates the process of meeting customer needs by financial institutions of all sizes. He also noted that in this case, conditions are being created to stimulate the activities of non-banking organizations, the regulation of which is limited in comparison with the possibilities of monitoring the work of traditional creditors.