FDIC Chair 'Very Concerned' EU Banking System Could Destabilize Global Economy

A top bank regulator said she is "very concerned" the European banking system has the potential to become a future source of financial instability, according to testimony obtained by Reuters on Wednesday.

Federal Deposit Insurance Corp Chairman Sheila Bair said her deep concerns were based in part on the credit quality of some countries and banks' exposure to the system.

Bair also said it was "just as troubling" that European banks "continue to effectively set their own capital requirements using internal risk estimates, unconstrained by any objective hard limits."

Most regulators and policymakers in the United States agree banks should be forced to hold more capital to protect against losses and help withstand potential tremors in the financial system.

But Bair contends representatives of some major European governments are going out of their way to express public misgivings about following through with the higher capital standards.

"With risk-based capital determined by bank management assumptions, and no leverage constraints on the horizon for several years, the prospects for further banking problems are unsettlingly high," said Bair, who is leaving the FDIC in July.

Bair's comments were prepared for a hearing on Thursday by the U.S. House Financial Services Committee into the international aspects of financial regulatory reform.

(Reporting by Dave Clarke; writing by Rachelle Younglai; editing by Tim Dobbyn and Andre Grenon)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[FancyPeter]

06:59 AM on 06/17/2011

Who is John Galt?

___
http://better-property.blogspot.com

[lcr999]

08:25 PM on 06/16/2011

Ah..she is worried the EU banks could destabilize the world economy. Hah !!

We already know that US banks HAVE crashed the world economy and have the capability to do it again. She should worry about regulating her own.

[jenyouwino]

10:46 PM on 06/16/2011

She was one of few in the Bush Admin who was worried, and her demise is even worse with this bunch of spend crazy nitwits. Besides, isn't she a short-timer? Obama will find a soft touch to replace her I'm sure. On the subject matter though, I think there has to be concern. As an IMF participant, we recently committed an additional line of credit up to $100 billion to control the world financial meltdown. So lets say that some of this goes to keep Greece solvent. Do you think we are apt to get repaid? Propping up EU dumbness on top of our own isn't in the budget, but when has that stopped us before??

[abbadabba]

04:58 PM on 06/16/2011

Another woman Wall Street regularly ignores.

[Peter Combs]

04:53 PM on 06/16/2011

Is she serious? If she wants to look at a source of instability go look at the Fed and then Jamie Dimon who is on the President's Advisory Panel...These two can and will likely do more damage than the EU..

Dodd Frank has been gutted and already the banks want to back to business as usual and skirt the Basil agreements...

[Longtimeliberal]

03:28 PM on 06/16/2011

Quit doing business with countries that don't protect the economy. We can work inside the US and encourage investment here. If other countries want to go through 2008 again do it without us.

[abbadabba]

04:55 PM on 06/16/2011

Swaps on Greece are seven fold their "value" from 2008. Those swaps route from our banks through Britain into Europe. Did you know swaps may only trade in the USA? That's another rule Gramm inserted into the CFTC Rules when he made regulating swaps off limits. Swaps are an American institution.

[mbo2]

02:36 PM on 06/16/2011

gee she's so insightful, NOT

[sanfran55]

02:21 PM on 06/16/2011

Isn't this like the pot calling the kettle black? A US Senate investigating subcommittee released a scathing report of the US banks and lender and mortgage brokers and their culpability in the financial disaster that has occurred - also, Stanford via the Financial Crisis Inquiry Commission for the US gov't also released a similar sobering report reiterating the same thing of a perfect storm of lack of regulations and greed and spectacular money (for the select few) while the majority suffers.

[blackranger]

02:05 PM on 06/16/2011

Break up the big banks (like we broke up A T and T ) and head the problem off at the pass!!!!

[mbo2]

02:37 PM on 06/16/2011

instead, Obama wants to pour billions into the sinkhole that is Greece

[becky bradshaw]

02:56 PM on 06/16/2011

Twenty-five years too late.

Sheila Bair's comments are on target. Most of her peers must believe that her basic points are correct.

The necessary reforms would now be called "drastic". It is unfortunate, but a near-collapse of the system is necessary for the needed political will. It does not require a mind as sharp as Ms. Bair to foresee the future.

Greece, Portugal, and probably Spain will default. The EU will not collapse, but the linkage of the economies will dramatically weaken. The Euro's value will vary between locations, so that Germany can remain properous at the expense of southern Europe.

The U.S. economy will remain weak for decades, mimicking the path of England in the 1950-1970 period. Americans will learn to ride the bus.

[china6]

01:46 PM on 06/16/2011

Socialism, works great doesn't it libs?

[Paul1963]

09:14 PM on 06/16/2011

Well we're hoping a Communist China can keep our economy afloat out, so I guess Communism is better.

[spoonbill1963]

01:36 PM on 06/16/2011

The commies in Greece will screw all of us.

[meijiame]

02:09 PM on 06/16/2011

Yeah, its poor people in Greece who are causing all of the problems and nothing to do with Goldman Sachs taking hundreds of millions in fees in a scheme to cook to the books for Greece so that when their real debt was exposed, amidst the global crash, they were hit with credit downgrades.

[spoonbill1963]

02:23 PM on 06/16/2011

Always Wall Street isn't it? Yo, wasn't it Wall Street's fault for that tsunami in Japan? Sure it was.

[flaconoire]

07:26 PM on 06/16/2011

The US did it to itself ( I mean the US banks) Do not blame Greece, the US started the ball rolling.

[Peter007]

01:27 PM on 06/16/2011

Higher reserves means less loans, means less money in the system and lower economic activity and higher unemployment.

[spoonbill1963]

01:37 PM on 06/16/2011

We need higher reserves no matter what. And we need to stop printing money.

[themodernleader]

01:12 PM on 06/16/2011

Our big banks with their toxic loans to poor nations of Europe must be liquidated at the proper time. Bailing them out would guarantee our bankruptcy proceedings with the world creditors surrounding the Capitol for a share of the spoils. What a helluva fix these incompetent Presidents have gotten us in.

[spoonbill1963]

01:37 PM on 06/16/2011

And congress too.

[HHHarry]

01:06 PM on 06/16/2011

Those dang Europeans. They should pay more attention to the US banking and financial system We would never do anything to destabilize the world economy.

[fredgladys]

06:11 PM on 06/16/2011

Yes indeed, americans can stand tall and proud knowing that they have a well regulated financial industry run by executives who would never do anything to line their own pockets and disadvantage their customers and shareholders. Not like those dern commies in the EU.

[ringmaster]

12:55 PM on 06/16/2011

American banks are still in the forefront of destabilizing the economy.

[OSCPJ]

12:48 PM on 06/16/2011

Sheila, you are 30 months late to the game. If you paid attention and did your job instead of drink the kool aid, you would of known this earlier.