FDIC’s McKernan sees lack of justification for proposed capital standards

Banking regulators have failed to make the case that the U.S. should adopt the so-called “Basel III endgame” capital standards, in part because the international Basel Committee on Banking Supervision had offered little to no explanation for some of its decisions in drafting the standards, FDIC Board Member Jonathan McKernan said today during a speech in New York City.

McKernan and FDIC Vice Chairman Travis Hill voted against the proposed standards when they came before the board in July. In his speech, McKernan cited several concerns with the proposal, among them a lack of clarity about how the Basel Committee reach some of its conclusions, such as its decision to drop a proposed fix in a provision that could lead to overcapitalization of banks with high-fee revenues.

“That then leaves us simply guessing, unable to defend or perhaps even understand important aspects of the Basel standards we’re trying to implement,” McKernan said. “In short, and I would put some emphasis on this, the proposal amounts to a big leap of faith in the Basel Committee.”


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