By John M. Pachkowski, J.D.
In remarks before the National Association for Business Economics and the Organization for Economic Cooperation and Development Global Economic Symposium in Paris, Thomas M. Hoenig, Vice Chairman of the Federal Deposit Insurance Corporation, spoke on the need for bank equity capital and noted that "considerable compelling data suggest that more equity capital—not less—is the better choice to attain sound banks and sustained economic growth."
Hoenig called equity capital the "most stable funding source for the banking industry" and noted that a number of academic studies have found that "the benefits of higher capital outweigh its costs."
He also raised concerns that the use of leverage ratios is in conflict over the appropriate amount of equity capital. Hoenig added, "As the memory of the 2008 financial crisis fades, however, the banking industry has begun to lobby for special treatment or exemptions from capital requirements for a host of assets included in the leverage ratio calculation for judging capital adequacy. If accepted, the effect of such proposals would be to again lower acceptable capital standards for this most important industry."
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