Are banks in favour of higher capital requirements?
Bankers are in favour of the deluge of new regulations imposed on financial institutions since 2008, one top executive has argued. With just a few caveats around bond market liquidity, banks are positive about things like higher capital requirements, according to one of the top bankers attending the World Economic Forum in Davos, Switzerland.
“The bulk of the regulatory reform was much needed,” said Anshu Jain, one of Deutsche Bank’s two chief executives. Speaking during a Bloomberg panel event, he even suggested that bank would have pursued this line even without government interference. “Our own management would have taken us on the same journey,” he said.
Banks are finding it hard to earn enough on the extra capital they are expected to hold. But stricter regulations could make banks’ bond trading operations more efficient. Higher capital requirements do not necessarily restrict liquidity provision.
Regulatory pressures are not seen in the same light by all, however.
Bankers are concerned that the removal of stimulus and tightening of interest rates could lead to a fall in bond prices that could cause significant market disruption, particularly as bond inventories are so low.
Capital requirements are the major concern for Jamie Dimon, the JP Morgan chief executive, who recently warned the US bank is “under assault” from regulators whom he says are ‘un-American’.
“In the old days, you dealt with one regulator. Now it’s five or six,” Dimon said on an earnings call in which the bank reported $22 billion in revenues. “You all should ask the question, how American that is.”
This came shortly after the Federal Reserve published a proposal that would require JP Morgan to hold even more capital than other major American banks. The New York bank would need to find more than $20 billion to strengthen its capital reserves by 2019 to meet new regulations put forward by the US central bank.
Fed vice chairman Stanley Fischer said JP Morgan was “the firm that is actually going to have to come up with more capital”, adding that the $22 billion extra it needed was a “pretty impressive shortfall”.