Fed’s Kashkari Argues for Much Higher Capital to Bolster Banks

Federal Reserve Bank of Minneapolis President Neel Kashkari said bank capital requirements should be lifted significantly to help backstop financial institutions against distress.

“Having significantly higher levels of capital is our only chance to build real resilience in our financial system,” Kashkari said in an essay published Monday on the Minneapolis Fed’s website. “I urge us to have the courage to take the hard path and address the underlying fragility of the banking sector.”

The push for higher capital requirements come amid US banking-sector strains that saw the collapse of several regional lenders this spring, including that of Silicon Valley Bank in March.

Fed officials have said they are watching to see by how much banks tighten lending conditions following the episodes, though Kashkari made no explicit comments about monetary policy in his essay.

Kashkari, a former Goldman Sachs Group Inc. banker who worked in the US Treasury Department during the 2008 financial crisis, has pushed for tougher bank capital rules before, though the post gives him no formal role in writing U.S. regulatory policy.

While the source of future crises is unknown, higher levels of equity capital will guard against “virtually all” scenarios, Kashkari said.

Source: Bloomberg

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