Big Bank CEOs testified in front of the Senate Banking Committee on Wednesday as part of lawmaker's annual oversight of the financial sector, discussing the Federal Reserve's proposed Basel III Endgame provisions for capital requirements.
Whalen Global Advisors Chairman Chris Whalen believes Congress' proposals appear to be misguided in lawmakers' attempts to rein in and regulate the banking industry.
"The rationale for a lot of these changes is wrong, and I also think that, unfortunately, the Fed had an opportunity to work with the industry to really address current problems," Whalen tells Yahoo Finance. "But they keep coming back to capital."
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This post was written by Luke Carberry Mogan.
Video Transcript
JOSH LIPTON: And Chris, so this proposal, obviously, you see real problems with it.
But what is, Chris, the problem they are trying to solve for, they think they're solving for?
CHRIS WHALEN: They think that they're still fighting a credit risk battle.
But the reality is we need to focus much more on market risk and also counterparty risk.
I agree with that part of the proposal.
But why are we going to put a higher capital risk weight on a mortgage, but we're not going to raise the risk weight for Ginnie Mae?
Mortgage-backed securities have much more leverage.
And they're much more dangerous as we saw with Silicon Valley, right?
It killed the bank.
So I think the rationale for a lot of these changes is wrong.
And I also think that, unfortunately, the Fed had an opportunity to work with the industry to really address current problems.
But they keep coming back to capital.
It's like the French with the Maginot Line at the beginning of World War II.
They were hiding behind the fortress.
And the Germans went around them.
And that's exactly what's going on here.
These banks, if anything, are under risk.
They have too much capital.
The problem is we keep pulling them out of markets like the Volcker Rule, which doesn't allow the large banks to make markets around their securities holdings.
That reduce liquidity in the market.
I don't think that was helpful.
So you know what I mean, there's a lot of good things we could be doing with this Basel process.
And I'm hopeful that we can make some changes.
I think it's going to be delayed, by the way.
I think the Biden administration really miscalculated how angry everybody in the mortgage industry is over this proposal.
I mean, everyone.
Why do you think we're running these ads?
Nobody in America knows what Basel is.