Citi's Pandit: High Capital Can Up Systemic Risk |
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September 23, 2011
The more capital governments require for banks to hold as a buffer against collapse, the more money that flows into unregulated sectors with systemic consequences, Citigroup Inc. CEO Vikram Pandit said Friday.
The more capital governments require for banks to hold as a buffer against collapse, the more money that flows into unregulated sectors with systemic consequences, Citigroup Inc. CEO Vikram Pandit said Friday.
“Paradoxically, the higher we set capital requirements for banks, the more money flows into unregulated or less regulated sectors of the system, thereby increasing systemic risk,” said Pandit said at a Bretton Woods Committee International Council meeting in Washington.
At issue, in part, is a deal international regulators reached in July that would require the biggest and most important global banks to hold a capital surcharge of an additional 2.5% of common equity on their balance sheets, by 2019. That agreement supplemented an accord known as Basel III that requires global banks to hold the strictest form of common equity capital of 7% of their assets, also by 2019
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