“We support bringing all this back on balance sheet,” Bair said. “It should have been on, frankly, all along. And we know that now.”
FDIC's Sheila Bair Interview on Financial Regulation
Video: Dec. 3 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair talks with Bloomberg editors and reporters about efforts to overhaul regulation of the U.S. financial system and the outlook for higher capital requirements for banks. Bair, speaking in Washington, said she may give banks a reprieve from raising capital to support billions of dollars of securities that firms will have to bring onto their balance sheets. Bair also discusses plans to jump-start the securitization market, mortgage modifications and her career outlook.
Click to hear the interview on Bloomberg >>
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And some context below from the accompanying print piece:
Dec. 3 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair said she may give banks including Citigroup Inc. and JPMorgan Chase & Co. a reprieve from raising capital to support billions of dollars of securities that firms will have to bring onto their balance sheets.
“Giving some breathing room in terms of when they can transition in is acceptable to us,” Bair said in an interview at Bloomberg News’s Washington bureau today. Bair said she wants the FDIC to vote on the issue at a Dec. 15 board meeting even as “we don’t completely have agreement yet among the regulators.”
Agencies including the FDIC and the Federal Reserve are considering financial industry requests to permit a phase-in of capital requirements, which rise starting next month under a change approved by the Financial Accounting Standards Board. The rule, passed in May, eliminates off-balance-sheet trusts known as Qualifying Special Purpose Entities, forcing banks to move billions of dollars of assets and liabilities onto their books.
“We support bringing all this back on balance sheet,” Bair said. “It should have been on, frankly, all along. And we know that now.”
Banks should be given three years to raise capital to offset assets and liabilities brought onto balance sheets, Citigroup Chief Financial Officer John Gerspach said in an Oct. 15 letter to regulators. Requiring banks to “assume the risk- based capital effects immediately, or even over one year, is an undeniably severe penalty,” he wrote.
New York-based Citigroup argued that the FASB rule would lead the bank to cut financing for securitizations that fuel credit-card lending, residential mortgages and student loans. Additional consumer loans will be cut as well, the bank said.
‘Negative Impact’
The capital requirements “will have a significant and negative impact on the amount of consumer-conduit funding that will be made available by U.S. banks,” JPMorgan Managing Director Adam Gilbert said in an Oct. 15 letter to regulators. “We strongly support a phase-in period for the rule changes.”
Investors are wary of a company’s unknown obligations after the world’s biggest banks and brokerages reported more than $1.7 trillion in writedowns and credit losses since the start of 2007, some stemming from losses in off-balance-sheet vehicles.
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And here's background on FASB 166 & 167, the rule changes causing the consternation for banks still playing off-balance sheet liar's poker:
Banks Need To End The $1 Trillion Game Of 'Hide and Seek' (Bloomberg)
Citigroup, JPMorgan Urge Relief From Higher Capital Requirement (Bloomberg)
Bringing It Back On Balance Sheet (FT Alphaville)
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