Saturday, June 20, 2009

Rep. Frank talks tough on U.S. bank capital rules: PBS

Rep. Frank talks tough on U.S. bank capital rules: PBS
WASHINGTON (Reuters) - A top U.S. lawmaker said on Friday he was considering proposing new capital rules for big banks that would get tougher as their assets increased.
Barney Frank, the Democrat who chairs the House of Representatives Financial Services Committee, said he spoke with Treasury Secretary Timothy Geithner about ways to make it "very tough" for banks to become too big to fail, according to an interview on PBS television's Nightly Business Report.
One idea under consideration was to set capital rules for large banks with requirements that may "go up more than proportionally" as banks increased their assets, the television program quoted Frank as saying, although it said some of his comments were made off-camera.
The regulatory overhaul plan that President Barack Obama laid out this week called for tighter regulations on the largest financial firms, and would give the Federal Reserve responsibility for monitoring risk.
But critics argued that drawing up a list of large firms that would get closer scrutiny sent a dangerous signal that these companies were too big to fail and would get government bailouts if they ran into trouble. The concern was that this would encourage them to take excessive risks.
Frank said the answer to that problem was ensuring that there were "disincentives" to firms getting too big. He said large firms would have to hold bigger capital cushions and be "more tightly restrained."
If they failed there would be severe penalties, including wiping out shareholders' equity investments and firing the chief executive, he said.
"There have to be disincentives," he said. "Because some people will say, 'Well, there will be an advantage. We'll be seen as 'too big to fail.'' And then other people will think, 'Well, I'll put my money in there, because it will always be safe.' We have to counter that. We have to put a lot of disincentives into size."
(Reporting by Emily Kaiser; Editing by Tim Dobbyn)

Source: Reuters

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