WASHINGTON, D.C.— Dennis M. Kelleher, Cofounder, President and CEO, issued the following statement in connection with Federal Reserve Board (Fed) Vice Chairman for Supervision Michael Barr’s speech on bank capital rules:
“The only thing standing between a failing bank and a taxpayer bailout is the amount of capital a bank has to absorb its own losses. Indeed, a bailout is nothing more than the government or taxpayers supplying a failing bank with the capital it should have had to prevent its failure in the first place. Under-capitalized systemically significant banks, including those with between $100 billion and $250 billion in total assets like Silicon Valley Bank, are a direct threat to everyone in the country and that’s why those banks must be required to have enough capital as discussed by Fed Vice Chair Barr in connection with his holistic review.
“When large banks have too little capital, Main Street families, small businesses, community banks and the entire economy pay the price. That happened in 2008 when Wall Street was bailed out by taxpayers, but Main Street suffered the Great Recession, and when Silicon Valley Bank and others failed just months ago, causing $31.5 billion in bailouts, deposit flight, credit contraction, and contagion fears.
“Well capitalized banks support a strong banking sector, financial system, and economy where Main Street families and businesses can thrive. Vice Chairman Barr’s thoughtful and well-considered plans to strengthen the current capital regime reflect those priorities. Completion of the Basel Endgame is a step in the right direction but is not enough. It is one tool to ensure that large banks can withstand the stress of a widespread economic downturn or dire idiosyncratic events while still fulfilling their critical role of supplying credit to the real economy without turning to taxpayers for bailouts when they get in trouble. But other measures are necessary, which is why we applaud Vice Chair Barr’s multifaceted approach to determining capital adequacy.
“Contrary to industry claims, Vice Chair Barr emphasized that higher bank capital requirements actually promote bank stability, lending, and economic growth, not constrain it. Higher levels of capital that adequately recognize the risk that large banks are taking could have avoided or substantially mitigated the 2008 crash and the recent failures of Silicon Valley Bank, Signature Bank, and First Republic Bank, which were three of the largest bank failures in history. Similarly, as concluded by Basel Committee on Banking Supervision, and many others, appropriately capitalized banks can continue lending through the economic cycle, in good times and bad, which reduces the depth, length, and cost of the recession on Main Street that large bank failures usually cause.
“Importantly, banks have the ability to increase their capital in a number of ways, most easily by reducing the payouts they shower on shareholders and their own senior executives. For example, since 2013, the largest banks have paid more than $500 billion dollars through share buybacks, dividends, and bonuses. This demonstrates that banks clearly have the funds to increase capital levels but are unwilling to redirect these funds from shareholders or executives.”
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Better Markets is a non-profit, non-partisan, and independent organization founded to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.
