FDIC Official Outlines Dodd-Frank Alternative Plan

Category: Rules and Regulations

A top Federal Deposit Insurance Corporation (FDIC) official has outlined a bold proposal to replace Dodd-Frank financial regulations, reports HousingWire. Thomas Hoenig, vice chairman of the FDIC, told attendees of the Institute of International Bankers Annual Washington Conference that Dodd-Frank’s one-size-fits-all approach to regulation hurts smaller banks, borrowers, and taxpayers. His solution would reportedly “better address the challenge of too-big-to-fail, regulatory burden, and competitive equity.”

Reform that “permits failure,” improves efficiency

Hoenig argued that reforms to Dodd-Frank “must be grounded in capitalism that permits failure and improves economic efficiency and growth while maintaining the safety and soundness of the economic and financial system overall.”

Hoenig continued, “We can best achieve these goals if the largest banks were to partition their commercial and investment banking activities and also hold tangible equity capital at a level where bank owners — not the taxpayer — cover the cost of inevitable failures.”

Banks have competitive advantage over nonbanks

The FDIC vice chairman pointed out data that showed nonbank entities not affiliated with an insured bank typically held tangible equity assets of eight percent. Nonbanks affiliated with an insured bank had “substantially less” operating capital with about five percent of assets. Hoenig argued this was a factor for banks continuing to enjoy a competitive advantage over nonbanks in certain operations, such as investment banking.

Hoenig plan would address “too-big-to-fail”

The article noted that a core part of the proposal “would require greater owner equity at risk for large, complex, universal banks, as defined in the accompanying term sheet.” Hoenig told conference attendees that “too-big-to-fail would be well on its way to being addressed, and a true opportunity for regulatory relief for these largest banks would be provided” under his plan. “We could pare back the thousands of pages of rules that inhibit bank performance and level the competitive playing field without undermining the stability of our financial system and economy,” he concluded.

Posted on: Thursday, March 16, 2017