Martin Gruenberg, the chairman of the Federal Deposit Insurance Corporation who is leaving the government agency, expressed concern that regulators may be doing too much to roll back rules that were put in place after the Great Recession and financial crisis.
According to a news report in Reuters, citing comments Gruenberg made at a forum on regulation and markets, he believes the existing rules have made the country's banking industry safer without impacting the profitability of U.S. financial institutions. “The danger is that changes to regulations could cross the line into substantial weakening of requirements,” the government official said. “Let’s be clear: Our largest banking organizations are not voluntarily holding the enhanced capital and liquid asset cushions required by current rules.”
Gruenberg noted that the U.S. economy is in the throes of its third biggest expansion ever, implying that there could be a correction coming – and if the financial markets or the economy do take a hit, that regulators should ensure the banks can handle it. As central banks around the world move to restore monetary policy to more normal levels, he said, the ensuing problems could include rising interest rates.
What’s more, Gruenberg noted that stocks, bonds and real estate are enjoying lofty valuations, which could be another sign that a correction is coming to the U.S. financial markets. “Taken together, these circumstances may represent a significant risk for financial market participants,” he said. “While banks are now stronger and more resilient as a result of the post-crisis reforms, they are not invulnerable.” He is also concerned about the capital requirement for the biggest financial firms, which has been getting lower.
Gruenberg is among the appointees of President Barack Obama who still hold regulation roles under President Donald Trump. His term as the head of the FDIC ends at the end of the month.