Executives of major U.S. banks: high capital requirements hurt lending

At the moment, the U.S. Federal Reserve is engaged in a thorough review of what bank capital should be. Thus, it’s absolutely clear that the introduction of stricter rules for certain categories of banks is inevitable.

The capital requirements that existed before 2008 became stricter after the financial crisis. It’s possible that these requirements may keep economic activity in check.

At a meeting of the IIF in Washington, John Dugan, chairman of Citigroup, pointed out that introducing tighter capital requirements for large banks wouldn’t end in anything good. According to him, it would reduce lending and intensify an already possible recession. And since banks can support the economy with enough credit, Dugan's words may turn out to be true.

JPMorgan Chase CEO Jamie Dimon and Bank of America CEO Brian Moynihan have the same position as Dugan has. According to Dimon, they are being robbed of the opportunity to be a reliable support for the markets at the most inopportune time, because now, in his opinion, this is the time when support is especially needed. This creates a situation when JPMorgan, who has $1.2 trillion in cash on hand, can invest none of it to pay down sovereign debt.

According to Moynihan, if they begin to increase capital, as prescribed, then it will become impossible to issue loans worth $160 billion.

For many years, the largest banks have been forced to adapt to the rather stringent requirements imposed on their capital. At the same time, as banks try to seek easing requirements, problems may begin with the regulatory bodies who are creating these requirements.

At an event of the Brookings Institution, U.S. Federal Reserve Vice Chairman Michael Barr suspects that the requirements may become stricter after the results of the central bank's review. In his opinion, the requirements to raise capital are absolutely reasonable.