Comptroller of the Currency Thomas J. Curry asserted that regulatory reforms since 2008 have improved capital, limited leverage, enhanced liquidity and improved supervision. In remarks at the 2016 Annual Robert Glauber Lecture at the Harvard Kennedy School, he stated that the U.S. “banking system is now as well capitalized as any in the world.”
Mr. Curry emphasized that:
- Improving Capital. “The benefits of a strong banking system built on a strong capital base should not be forgotten in debates about striking the right balance in capital standards.”
- Limiting Leverage. Leverage ratios should “serve as an additional line of defense, or backstop, to the risk-based capital measures.”
- Enhancing Liquidity. Implementing the Liquidity Coverage Ratio and the proposed Net Stable Funding Ratio are “steps in the right direction.”
- “The importance of effective supervision is perhaps the crisis’ greatest lesson” – supervision is “the regulators’ primary means of affecting behavior and promoting a healthy risk culture.”
In the end, the measure of this work is whether the financial system is now stronger, more resilient, and more capable of satisfying the financial needs of the United States, and can adapt to changing consumer demands, market opportunities, and new technology. I think that answer is “yes.”
Mr. Curry cautioned regulators that “now is not the time to let our guard down” and observed that “[t]hose who have been in this business for more than one cycle know a downturn will come,” he concluded that “lessons from 2008 were not really new lessons,” after all, but reminders of basic principles.
Lofchie Comment: Regulators may want to consider tempering these kinds of victory speeches with a little less self-congratulation and a little more reflection. Just by the law of averages, not every rule works or is worthwhile. Regulators may want to allow for the possibility that the massive regulatory burdens that have been imposed since the financial crisis may require some reconsideration.
Regulators might ask, for example, why so many community banks are shutting down at such a rapid rate. Or they might consider whether the combination of: (i) expensive new regulatory burdens, (ii) diminution of powers to engage in previously profitable activities, (iii) the effect of abnormally low interest rates and interest rate spreads, and (iv) competition from new fintech firms that create significant new issues for banks of all sizes could negatively affect a bank’s ability to cover its costs and what that might mean to the economy.