Federal Deposit Insurance Corporation ("FDIC") Vice Chair Thomas M. Hoenig outlined a regulatory approach for providing meaningful relief without "undermining the goal of assuring sound banking."

In a speech before the Peterson Institute for International Economics in Washington, D.C., Mr. Hoenig cautioned against altering post-financial crisis capital standards. He said that reducing the capital requirements for banks by excluding central bank reserves from the supplemental leverage ratio ("SLR") is a "serious policy mistake." Further, he urged regulators to issue policies that encourage banks to retain capital, not to reduce it, and cautioned against removing initial margin from the SLR exposure calculation. 

On the Volcker Rule, Mr. Hoenig said that it should continue to apply to banks that benefit from deposit insurance, but acknowledged that the rule's application could be simplified. He argued that commercial banks should be able to enter into swaps and other derivatives, buy and sell government securities, and manage their day-to-day liquidity needs with a presumption of compliance (absent compelling evidence to the contrary).

Mr. Hoenig also expressed concern about the new Basel accord. He said that the recent Basel Committee agreement, which U.S. regulatory agencies joined, will remove an estimated $145 billion of capital from the eight largest banks. Mr. Hoenig warned that the reduction in private capital would need to be underwritten by the FDIC, the Federal Reserve and U.S. taxpayers.

Since community and regional banks do not engage in the same risk activities as large banks, Mr. Hoenig asserted that they should not be regulated as if they do. He identified several rules that should be considered for elimination or amendment as applied to smaller banks, including: the Basel capital calculations, the liquidity rules, Comprehensive Capital Analysis and Review and the Volcker Rule.

Mr. Hoenig also suggested that the living will administrative process should be considered for additional relief. He described the process as "cumbersome, political and misleading," and said it provides little new information. 

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