FDIC Vice Chairman Hoenig steps down Monday; teams up with Bair in warning on capital

FDIC Vice Chairman Thomas M. Hoenig

Thomas Hoenig, who continues to sound a warning bell over federal regulators’ efforts to ease banks’ capital requirements, will step down from his post as a member and vice chairman of the Federal Deposit Insurance Corp. (FDIC) Board on Monday, April 30, he said in a statement Friday.

The Wall Street Journal on Friday carried an opinion piece coauthored by Hoenig and former FDIC Chairman Sheila Bair that warns against weakening banks’ capital. Calling the nation’s biggest banks “among the most leveraged financial institutions operating in the country today,” the two air concerns about capital rule changes proposed by the Federal Reserve Board (Fed) and Office of the Comptroller of the Currency (OCC). “These proposals have the laudable goals of simplifying bank capital rules and boosting lending to the real economy,” they state. “But we fear their unintended impact would be to make the financial system less resilient and to make another financial crisis likelier and more severe.”

The two reject as “urban legend” the notion that decreasing bank capital requirements leads to more lending. “Highly leveraged banks are vulnerable to the shocks that inevitably occur during a downturn,” they write. “Because of the major banks’ size and scope, that vulnerability undermines the stability of the economy.”

On Monday, Hoenig will leave the FDIC after having completed a full six-year term on the agency’s board; he has served there since April 2012. In Friday’s statement, Chairman Martin Gruenberg called him “a forceful advocate for strong, independent financial regulation.”

Gruenberg’s term expired in November, and Jelena McWilliams awaits confirmation by the Senate to succeed him as FDIC chairman. She would fill the board member seat that Hoenig is vacating.

Thomas M. Hoenig to Step Down as FDIC Vice Chairman

Hoenig/Bair op-ed, The Wall Street Journal (subscription required for full view)