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Congress should stay out of new bank rules on loan losses

The Honorable Sheila C. Bair

(Original source Financial Times)

“As I was growing up, my Depression-era parents always preached the importance of having a rainy-day fund to deal with the economic hardships life inevitably throws at you, such as job loss or illness.

Later, as a bank regulator, I valued the similar funds banks set aside to cover losses they would invariably incur on some loans. Unfortunately, in the lead up to the 2008 financial crisis, those funds — called loan loss reserves — were woefully inadequate primarily because of accounting constraints that some bankers rightfully complained about at the time.

But now that accounting standard-setters are trying to improve those rules, industry lobbyists want Congress to help them preserve the status quo.”

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