While Dodd-Frank and the CARD act have paved the way for a new level of consumer protection, U.S. financial institutions will have some uncertainty as to their affect until the regulators solidify the rules behind them. Where in some cases Basel III is a step in the right direction, in others it could potentially make matters worse.
Such was the tone of Citigroup CEO Vikram Pandit's address at The Economist's Buttonwood Gathering this week in New York.
Pandit also stressed the importance of overcoming complacency as the financial services industry continues to recover from crisis.
"The problem for us is we are right now in a policy Goldilocks moment," Pandit said. "The worst of the crisis is behind us, unemployment is high, growth is sluggish, but the economy seems to have stabilized. None of us likes the current environment, particularly this high unemployment, but the downside of stability is that it undermines the sense of urgency."
On the impact of Dodd-Frank and the CARD act, Pandit emphasized the biggest accomplishment is in the strengthening of consumer rights, an area where change was necessary. But, he warned, banks will be challenged by less revenue, and consumers will be challenged as less credit becomes available to the less affluent.
Pandit was more critical of Basel III. Where Basel sought to address excess leverage, the procyclical nature of old capital requirements, and a playing field that is not level geographically or across the overall financial services industry, the new regulation only really fixes some of the issues.
"Basel addresses the over-leverage problem," Pandit said. "But on the other three it is either silent, doesn't go far enough or makes the problem worse."
Different countries will still be able to interpret Basel III differently, the capital requirements are still too low during good times and too high for the bad, and different sectors of the financial service industry are still affected differently.
"Remember that the banking system is not synonymous with the financial system as a whole, and basel only affects the former," Pandit said. "Shifting risk into the unregulated or differently-regulated sectors won't make the banking system safer. On the contrary the overall risk of the system could actually rise."
He said a solution to the problem is proper calibration and greater uniformity; if everyone in the industry is playing by the same rules, standardization will lead to success.
View Pandit's full commentary in the video below.