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June 3, 2013

Yellen: Stronger capital rules needed

“Federal Reserve Vice Chairman Janet Yellen said it may be appropriate for U.S. regulators to impose higher capital surcharges on large banks than those proposed by the international Basel III agreement.

Yellen said she agreed with Fed Governors Daniel Tarullo and Jeremy Stein, who have made similar statements in recent speeches.

“As they suggest, fully offsetting any remaining ‘too big to fail’ subsidies and forcing full internalization of the social costs of a SIFI failure may require either a steeper capital surcharge curve or some other mechanism for requiring that additional capital be held by firms that potentially pose the greatest risks to financial stability,” Yellen in a speech prepared for delivery in Shanghai on Monday.

She also said the Fed and the Federal Deposit Insurance Corporation are “considering the merits” of a requirement that systemically important firms hold minimum amounts of long-term unsecured debt that could absorb losses in the event of a failure, which “could enhance the prospects for an orderly SIFI resolution.” She said Switzerland, the United Kingdom and the European Union are moving forward on similar requirements, and it may be useful to work toward an international agreement for global SIFIs.”


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