In a speech delivered to The Clearing House on November 30, 2016, Comptroller of the Currency Thomas J. Curry argued against weakening the capital, leverage, liquidity and supervisory standards that were put in place in response to the 2008 financial crisis.  Throughout his remarks, Comptroller Curry rejected the notion that the current standards are unduly restrictive, and argued that relaxing the standards would leave the financial system susceptible to another crisis in the event of an economic downturn.

Comptroller Curry first praised the strength of capital in the banking system, pointing approvingly to the results of the Federal Reserve’s 2016 stress tests, which Comptroller Curry said showed that the 33 largest bank holding companies would remain well capitalized and capable of lending under even the most adverse scenarios.  According to Comptroller Curry, such strong capital “will reduce the severity and length of the next downturn.”  This anticipated resilience during the next  economic downturn stands in contrast to the 2008 crisis, which, according to Comptroller Curry, demonstrated the dangers of banks failing to hold capital levels commensurate with their risks.  He asserted that the 2008 crisis serves as a rejoinder to those who “question whether capital requirements have gone too far,” and feel that the current requirements “unduly restrict lending and limit economic growth.”  Next, Comptroller Curry turned to the danger of excessive leverage, arguing that there is a need to employ leverage ratios as a backstop to risk-based capital requirements.  Comptroller Curry warned that watering down the leverage ratio requirement with exclusions would make the ratio more meaningless and unnecessarily complex, which in turn would “make market participants less trusting at the most critical points of a downturn.”

Comptroller Curry also addressed the need for ample liquidity, a lack of which he argued contributed to the 2008 crisis as much as weak capital. He pointed to the Liquidity Coverage Ratio and the proposed Net Stable Funding Ratio as “prudent steps to ensure ample liquidity.”  Comptroller Curry argued that capital, leverage, and liquidity requirements, rather than inhibiting banks’ profitability, may have increased it, pointing to the fact that in 2015 “revenue for the top five U.S. banks was more than double that of their European counterparts” and that U.S. banks earned significantly higher profits than European banks.

Comptroller Curry then turned to supervision, arguing in favor of strong, holistic supervision that complements strong financial standards and pointing to the significant decrease in the number of troubled institutions (those rated 4 or 5 under the CAMELS rating system) as evidence of the benefits of strong supervision. He warned that a “light-touch” supervisory approach could imperil the business model of large institutions by undermining public trust in them.  Comptroller Curry also addressed governance standards at banks and floated the idea of a requirement that at least large, complex national banks split the roles of Board Chairman and CEO to mitigate the risks of potential conflicts of interest.

Comptroller Curry’s strong pro-regulatory remarks come against the backdrop of the ongoing transition to Donald Trump’s presidency, which increasingly looks like it will place a heavy emphasis on deregulation. Indeed, while President-elect Trump has not taken a position on the specific topics addressed by Comptroller Curry, his promise to “dismantle” the Dodd-Frank Act seems potentially to be in tension with Comptroller Curry’s argument that “[w]e cannot return to the same practices and weaker safeguards that resulted in the crisis we experienced in 2008.”