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FDIC Chair Argues for Capital Boost, Leverage Curbs

The U.S. regulator is making her case for capital reform.



) -- Banks should not push back on proposed international banking standards or face "wasting" the billions already spent bailing out the financial system, according to one U.S. regulator.

Newly proposed capital and leverage rules proposed by the Basel Committee on Banking Supervision should be embraced by banking executives as a way keep risk-taking in check, thus avoiding another market collapse, says Sheila Bair, chairwoman of the

Federal Deposit Insurance Corp


"Cleaning up bank balance sheets and strengthening the quality and quantity of capital will not be painless," Bair says in a column in today's

Financial Times

. "But if we fail to follow through in strengthening bank capital, we risk wasting the capital we already have and exposing the global economy to the onerous and indefensible costs of another financial crisis."

Bair shoots back at banking

industry critics that argue the proposed standards will curb lending and raise borrowing costs. In June the Institute of International Finance (IIF) released a

report that said reforms will raise the cost of bank loans by an average of 132 basis points and throw many industrialized countries back into recession.

The board of the IIF incluides high-profile financial services executives from

JPMorgan Chase

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and other large multinational banks

The FDIC chairwoman counters that that the "long term" benefits of the proposals will create stability in the financial markets.


If financial reform is about anything, it is about better aligning incentives and internalising the costs of leverage and risk-taking," Bair says in the FT column. "A more rational capital regime that extends across the global financial system is an essential part of these reforms."