Citigroup's Pandit: Basel Will Cause Next Bubble

We like bubbles:

Citigroup(C_) CEO Vikram Pandit attacked the Basel banking reforms in a speech given on Monday, arguing that the new set of banking regulations are not just flawed, but outright miss the mark more often than not, and may just cause the next financial bubble.

The speech, made by Citi CEO Pandit at the annual Buttonwood Conference at the City University of New York on Monday, was a wide-ranging review of the banking sector regulatory overhauls made during the past year, including not just the international Basel reforms but also the Dodd-Frank U.S. legislative reform package and the consumer protection CARD Act.

Pandit had some bones to pick with the U.S.-specific bank reforms, saying that the Dodd-Frank legislation and CARD Act may have the unintended consequence of clamping down on loan availability for the lower income brackets, if not leading to an outright abandonment of low-income and rural communities where banks can't make enough money.

In any event, the big banking reform target of abuse for Pandit in his speech was Basel, over which he described his concerns as "deep." The arguments made by the Citi CEO in his speech are sure to be featured as part of bank industry lobbying efforts to reshape Basel requirements.

"The Basel Committee reforms are headed in the right direction. But in some respects they don't go far enough and in others they miss the mark," Pandit said.

The Citi CEO took aim at three of the four major provisions of Basel: 1) resetting capital  requirements; 2) creating a level playing field across financial institutions; and 3) creating geographic parity in addition to parity among financial institutions.

Pandit had little to say about excessive leverage, but an excess of complains about the rest of Basel. It "addresses the over-leverage problem. But on the other three, it is either silent, doesn't go far enough, or makes the problem worse," Pandit said....MORE