WASHINGTON -- Credit market turmoil shows it is time "serious consideration" be given to raising capital levels for firms that use complex securities such as collaterized debt obligations and mortgage-backed securities, the chairman of Citigroup Incsaid Monday.
"There is a real question about capital and margin requirements and not just for banks, but for all users of the products of financial engineering," Robert Rubin told reporters on the sidelines of a Brookings Institution conference on economic growth strategies for developing countries.
Last week, G7 finance ministers approved a Financial Stability Forum (FSF) report aimed at preventing future financial crises.
The FSF, a group created by the G7 that includes central bankers and global regulators, recommended boosting capital requirements for banks' off balance sheet securities and complex instruments. It also proposed raising the capital requirements of the so-called Basel II accord for certain complex structured credit products and adding new requirements for default and event risk on banks' trading books.
"Serious consideration should be given for having much higher margin, (and) capital requirements," said Rubin, a former U.S. Treasury Secretary, who said he had not read the FSF report, but has read media reports.
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"You wouldn't do it right now, because right now you have all kind of stresses, but that would be something that you would try to evolve to over time," he added.
Rubin did not specify whether higher capital levels should be set voluntarily by banks or if the issue ought to be addressed by regulators.
The G7 — the United States, Canada, Britain, France, Germany, Italy and Japan — want bankers to quickly put losses behind them and raise new capital.
Citigroup, which has been forced to take more than $20 billion in write-downs and losses, raised more than $30 billion of capital from November to January.
Rubin declined to answer any questions about Citigroup, which is due to report its 2008 first quarter results Friday. Analysts on average expect the bank to report a loss of 95 cents per share, according to Reuters Estimates, as well as announce more write-downs.
Wall Street is bracing for a series of steep losses this week as major banks report their quarterly results. On Monday, Wachovia Corp announced a quarterly loss after boosting its reserves for losses and writing off $1.56 billion in debt mostly tied to the U.S. housing slump and strained credit markets.
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