OCC’s Curry: bank capital robust

Author: Edward Price | Published: 2 Dec 2016
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US comptroller of the currency Thomas Curry has said that while the US banking sector is so well-capitalised that the severity and length of the next downturn will likely be reduced, there are widespread industry concerns that capital requirements have gone too far.

Curry, whose term at the head of the Office of the Comptroller of the Currency (OCC) ends in April 2017, was speaking at The Clearing House (TCH) annual conference in New York City on November 29.

“Our banking system is now as well capitalised as any in my professional memory. We’ve had six years of steady progress,” he said.

By way of evidence, he pointed to how the 2016 Federal Reserve stress tests showed common equity at levels more than double those of the first quarter of 2009, a $700 billion increase in common equity capital over the same period. According to Curry, that level would see the 33 banks considered in the tests able to continue to lend throughout even the most severe economic downturn considered.

"A few critics suggest today's capital requirements unduly restrict lending and limit economic growth"

“Strong capital like this will reduce the severity and length of the next downturn – if capital remains strong,” Curry told delegates.

Stability versus growth

Many in industry have their own view of bank capital levels in the US – a view Curry acknowledged in his remarks. “A few critics suggest today’s capital requirements unduly restrict lending and limit economic growth,” he said, adding that as a policy question, wondering whether capital is too high is a legitimate exercise.

But his core argument remained unchanged: the benefits of a robust banking system stem from high levels of regulatory capital, and the downside risk of any future recession similar in scale or nature to that of 2008 should outweigh other concerns in the debate over regulatory reform.

Nobody wants a repeat of the 2008 financial crisis. But this is not the only risk presented by the financial sector to the real economy. The other is that the financial sector in general, and banks in particular, set levels of credit provision below that of market demand. This curtails short-term growth and stunts long-term economic development. In short, many argue that that financial stability and economic growth have an inverse relationship.

That said, the many factors at play in developed economies make difficult any attempt to quantify losses to GDP stemming from bank sector regulation. Curry was keen to point out that, compared to their European competitors, US banks are doing very well. In 2015, revenue at the top five US banks was more than double that of their European counterparts, with US banks’ pre-tax profits at $33.5 billion compared to European banks’ $4.2 billion, according to Curry.

Tom Curry
Head of the OCC, Thomas Curry
This, he contended, is in part the result of the high capital reserves found in US banks.

“The strength of US banks have improved their competitiveness not weakened it,” Curry said.

The debate on growth versus stability will likely continue for some time, accompanied by other debates the conference covered: those over the effects of regulation on market liquidity in the US and the necessity or otherwise for an international bank regulatory environment.

Anecdotal evidence for weaker market liquidity in the US is rising, as is the number of market participants willing to see causality in the link between poor market liquidity and stringent bank sector regulation. Regulators in the US, however, are consistent in their view that market liquidity is broadly undamaged. Meanwhile, the conference also saw Lord King, former governor of the Bank of England, directly question the need for an international framework.

TCH, which ran the annual event at which Curry spoke, has conducted in-depth research both topics.

Lessons on leverage, liquidity

In his remarks, Curry stressed two further lessons of the 2008 crisis in addition to the need for higher capital: what he described as the danger of excessive leverage and the need for ample bank liquidity.

“We have long recognised that strong risk-based capital alone cannot ensure the safety and soundness of large complex banks,” Curry said, arguing that once markets begin to question the quality and quantity of bank capital levels, a crisis may be impossible to prevent.  

“For this reason, we have employed leverage ratios to serve as an additional line of defense, or backstop, to the risk-based capital measures,” Curry said, arguing that two ratio metrics for larger banks capture elements that contribute to leverage not captured by simpler measures focused exclusively on a bank’s balance sheet.


  • The OCC’s Thomas Curry has said the US bank sector’s high capital levels can contain the depth of the next downturn;
  • Speaking at The Clearing House annual conference, he also acknowledged widespread industry concerns at overly high bank capital requirements;
  • That concern is that onerous capital requirements unduly restrict lending and limit economic growth;
  • He also stressed his faith in the Liquidity Coverage Ratio and proposed the Net Stable Funding Ratio;
  • He also emphasised that current levels of capital and liquidity should remain as a bulwark during the next recession.

Curry also spoke about the need for ample liquidity in the bank system, arguing that a lack of liquidity contributed as much to solvency issues in 2008 as did weak capital and citing the achievement of the liquidity coverage ratio (LCR) and proposed the net stable funding ratio (NSFR).

The rationale behind both the LCR and NSFR is mitigating any loss of liquidity in institutions significant enough to induce the systemic contagion effects that could follow. But the design of the LCR has invited much debate among leading industry economists. And work from TCH chief economist Bill Nelson has questioned the NSFR.

Despite being aware of industry views, Curry drew a communality between the tasks facing regulators and bankers going into 2017 and beyond – preparing for the next downturn or financial shock. To that end, he argued changing course on the regulation codified and implemented since 2008 would be a mistake.

“We must remain vigilant about the levels of capital and liquidity in good times so they will be there to serve as a bulwark during the next recession,” Curry said.

See also

King: no need for international framework

NSFR questioned by US banks

Internationalisation of US bank regulation questioned