FDIC Chief Urges Fed to Increase Rates

The Federal Reserve should demand more capital from Wall Street while the central bank slowly increases interest rates, a leading U.S. regulator said on Thursday as he outlined a formula for future economic growth.

Thomas Hoenig, vice-chairman of the Federal Deposit Insurance Corporation, said the financial system could be rattled if the Fed continued to hold rates low while the largest banks did nothing to increase capital reserves.

“The challenge is to find a path that enables central banks to rebalance monetary policy without shock overwhelming the financial system,” said Hoenig, a leading voice for tough banking regulations.

That shock could come if the Fed were to suddenly increase rates while banks lacked capital, said Hoenig.

Banks retain profits or issue stock as a cushion against future losses. Global banking regulators are debating how much of a cushion – or ‘capital’ – leading banks should have.

A global watchdog for banking standards, the Basel Committee on Banking Supervision, is writing new capital rules.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza