Minneapolis Federal Reserve President Neel Kashkari believes that regional banks should face stricter regulations, as he believes that the crisis earlier this year may not be completely resolved.

During a town hall session, Kashkari was asked whether he supports proposals to increase capital requirements for banks with assets exceeding $100 billion. In response, he expressed his personal opinion, stating, “I think it’s a step in the right direction, but I believe we need to go much further.”

Following Kashkari’s remarks, the shares of regional banks declined. The SPDR S&P Regional Banking ETF (KRE) experienced a 2.4% decrease around midday.

Kashkari, who played a key role in developing the Troubled Asset Relief Program during the 2008 financial crisis, warned that if the Federal Reserve continues to raise interest rates, it could create further challenges for smaller banks.

The crisis was primarily caused by duration risk, where banks were forced to sell assets to meet withdrawal demands due to a loss of confidence. Banks holding longer-term Treasuries faced capital losses as interest rates increased and bond prices fell.

Kashkari did not explicitly state whether he believes the Federal Reserve is prepared for additional rate hikes, but he emphasized that “we are far from considering rate cuts.”

He stated, “Currently, it appears that things are relatively stable and that banks have managed to navigate through this crisis reasonably well. However, there is a risk that if inflation remains uncontrolled and we need to raise rates further to address it, banks may face greater losses in the future. These pressures could potentially resurface.”

When asked whether the failures of banks in March were caused by higher interest rates or mismanagement, Kashkari replied, “all of the above.”