FDIC Signals a Return to Logic

Speaking at last week’s American Banker Symposium, FDIC Director Thomas Hoenig made what may be the most forceful rejection of the Basel III rules by a US regulator to date, as the chorus among bankers and regulators around the world continues to grow.  Finally, someone in a position of influence within the US regulatory system has taken a stand and publicly acknowledged what many of us already know…….The Basel III rules are too cumbersome, too complex and won’t achieve their primary mission which is to keep banks safer and out of trouble.

In his own words,  “I believe the Committee should agree to delay implementation and revisit the proposal. Absent that, the United States should not implement Basel III, but reject the Basel approach to capital and go back to the basics”.  We could not have said it better.  What a far cry from the press grabbing quotes from the FDIC during the Sheila Bair’s days when she and others were on board for pushing even tougher standards on the banks than Basel III.

Hoenig went on to say, Basel III “continues an experiment that has lasted too long” and added that the “enormously complicated” new rules would open the door to malfeasance”.  “If you add 400 more rules, or 400 equations, that is 400 more ways to game the system”.  We could not agree more.

We hope that Director Hoenig’s comments are reflective of a change of heart at the FDIC.  If they are, this could be one of the most positive developments that we will see for the US securitization industry over the next couple of years, as the “balance sheet treatment” for any number of asset classes maybe restored to the favored status that they enjoyed for many, many years prior to the Credit Crisis.