A regional Federal Reserve president got a big applause in front of an audience of Memphis businessmen and bankers, acknowledging concern about new rules that would force banks to build higher capital cushions to absorb future losses.
An international organization has spent the last few years working on those new standards, and countries around the world including the U.S. are in the midst of either planning or writing their own regulatory framework within which to implement those rules. Among concerns from critics: every dollar a bank is forced to hold back is a dollar that’s not being lent out to consumers.
Jim Bullard, president of the Federal Reserve Bank of St. Louis, was the regional Fed president who spoke Thursday to the Economic Club of Memphis, the day after both presidential candidates participated in the first presidential debate of 2012 on economic issues. The new rules Bullard referred to comprise the Basel III capital agreement, and his issue is that agreement was hammered out largely with major border-spanning banks in mind, as opposed to smaller community institutions.
During the question-and-answer portion of the evening, one questioner alluded to the certainty of the end of the world, a theme Bullard seized on to make a joke: The Mayans, he said, actually mention the Basel III standards in their calendar prophesying the world’s end.
It got plenty of applause from a crowd that consisted largely of financial industry professionals tied in some way to community banking – the very people Bullard believes are likely to be hurt by the new standards.
Of course, just because something would hurt lending doesn’t mean Bullard is against it solely for that reason.
“One of our problems is the policies we’re using are encouraging borrowing in an economy that’s borrowed too much,” Bullard said. “Markets are wondering – what’s next? We need to get back to rule-like behavior. Get out of crisis mode.”
After four years of pushing emergency-fueled economic policies, Bullard said, a crisis has ceased being a crisis. By definition, he went on, it should not become a permanent state of affairs. One bit of good news: he does think unemployment will continue to tick down in the U.S. Bullard sees that pattern unfolding at a half percentage point to a full percentage point per year, so that, for example, two years from now the country’s jobless rate could be as much as two percentage points lower than it is now.
“The problem is: if we go back into recession, that shoots back up,” Bullard said.