Sheila Bair:
There are so many different narratives going on.
I think there were some things in — some things that happen into 2018 with the law you’re referring to, as well as some of the things that Fed did on its own, the so-called tiering, so having different regulatory regimes for different size institutions. And some of that’s OK.
But a couple of things, I think, were not OK. One is, I think banks need at least an annual stress just, I think they just do. Now, you can have a simpler stress test for the smaller institutions, but they need it. They need to be — right now, they need to be stressing the securities, the securities that they hold that have lost market value and, if they had to sell them, how much trouble they would be in.
So I think that was a mistake. I also think the revised regulations let these midsized banks, the smaller banks, even if they had the securities we have been talking about that are — that they intend to sell, they don’t have to recognize the market loss. So, in other words, they don’t have to deduct from their capital market losses on those securities. That was a mistake.
At least for those that they think they might sell, they absolutely should be deducting them from capital now to make sure that they have enough capital to absorb the losses if and when they do sell. So those are two mistakes that I think should be corrected.
But, there again, I don’t think we need a big, broad overhaul for regional banks. Again, I think most of them are just fine. It’s a teachable moment maybe, perhaps, reminding people how banks work, how deposit insurance works.