Citi Chair: New Capital Requirements Will Hurt Lending

Citigroup’s chairman is the latest banking executive to warn against the U.S. plan for new capital requirements.

In an interview with Bloomberg published Wednesday (Oct. 11), John C. Dugan said the proposal to raise capital requirements for banks will diminish lending opportunities.

“We believe it really will have a material impact on the amount of lending that U.S. companies can do generally, which is not a good thing when the economy is more or less in a precarious position,” Dugan said. “Our largest banks including Citi are very strong from a safety and soundness perspective in terms of capital levels and liquidity levels.”

Dugan said the proposed capital requirement hikes seemed “somewhat bizarrely” to be a reaction to the failure of three regional banks earlier this year. Under the new rules, the country’s eight biggest banks — Citi among them — would need to increase their capital by about 19%.

Dugan’s comments echo those of JPMorgan Chase CEO Jamie Dimon, who has warned that efforts by financial regulators to hike capital requirements would limit economic growth and make mortgages and loans less affordable.

As he told CNBC at the time: “If they want to put all mortgages and small business loans out of the banking system, so be it, but they should tell that to the American public.”

The capital requirements were also the subject of a recent hearing by the House Financial Services Subcommittee on Financial Institutions and Monetary Policy, where Republican lawmakers campaigned against the changes.

Rep. Andy Barr (R-Ky.), who leads the subcommittee, said the proposed regulations have been “delivered in an underdeveloped and hurried fashion, and, in many crucial areas, is glaringly arbitrary and capricious.”

Earlier this week, Michael Barr, the Federal Reserve’s vice chair for supervision, argued that the proposed rules would make the financial system safer.

“The proposal is projected to raise capital for large banks,” Barr said at an American Bankers Association (ABA) event on Monday (Oct. 9). “This may result in higher funding costs. But this is only half the story. Capital also enables banks to absorb more losses without risking their ability to repay their creditors.”

Barr’s hosts that day have also spoken out against the capital requirements.

“We have long believed that regulation should be tailored to a bank’s risk and business model, ABA President Rob Nicholls said in a June 22 statement. “Arbitrary asset thresholds and changes not justified by rigorous data and evidence are a mistake that will only make it harder for banks of all sizes to meet the needs of their customers, clients and communities while driving financial activity to less-regulated nonbanks.”