The nation’s largest banks have been complaining about an international agreement that would require them to hold an additional layer of capital to protect against losses.
If Treasury Secretary Timothy Geithner had his way, that extra cushion would be a lot thinner, in what might be the biggest news nugget in a new book out Tuesday by former Federal Deposit Insurance Corp. Chairman Sheila Bair.
At issue is the new bank-capital rules that international regulators in Basel, Switzerland, hammered out after the financial crisis to help avoid a repeat. Bair contends that Geithner worked behind the scenes to set lower capital rules than the FDIC and Fed wanted.
To be sure, Geithner was a vocal supporter for raising capital standards from their pre-crisis lows. While still at the New York Fed, he advocated for new rules that would give banks “a stronger set of shock absorbers, in terms of capital and liquidity.”
But Bair contends that Geithner didn’t want to raise capital standards as high as Federal Reserve and FDIC officials, who had the real authority on the issue.
In her book, Bair says that early on, Geithner started organizing meetings of U.S. banking regulators that belong to the Basel group to formulate the U.S. negotiating position — even though Treasury isn’t a member of the committee.
Bair said she sensed that Fed Chairman Ben Bernanke and governor Daniel Tarullo were “uncomfortable” with the Treasury-organized meetings since the Fed is the head of the U.S. Basel delegation. A Fed spokeswoman declined to comment.
