No doubt many parts of the new regulations associated with the Dodd-Frank Wall Street reform bill are complex and will need to be carefully implemented, FDIC chair Sheila Bair said this morning during a talk at the Council of Foreign Relations in New York City with New York Times’ Andrew Ross Sorkin. But the banking industry’s gripes over having to keep higher levels of capital to hopefully avoid another banking crisis are pretty nonsensical.

“Banks are not doing a lot of lending now and the ones frankly who are doing a better job at lending are the smaller institutions that have the higher capital requirements,” Bair says, adding that capital requirements need to be higher especially for large systemic entities.

“We can raise capital requirements by 200 to 300 basis points within a very short time period and I think in terms of impacting lending, I don’t think that’s going to be there.”

Admittedly, lending by America’s smaller banks fell during the first three months of this year, Bair says. But that has more to do with weak demand from already over-leveraged borrowers and probably not higher capital standards.

“Right now they’re [big banks] not lending for a couple of reasons. They’re somewhat risk averse. And I think if you could take the cheap fund and invest them in … very low risk securities … that might be a safer play than making a small business loan.”

Bair, one of the banking industry’s most influential regulators and one of the most outspoken critics during the 2008 financial crisis, is expected to step down from her role in July, ending a five-year term in which she help develop the government’s response to the crisis. Her remarks at the Council come a few days after Dimon challenged Fed Chairman Ben Bernanke about the possible negative implications of the new banking rules.

Bair did contend that Dimon’s concern that regulations over derivatives could prove too expensive and drive swaps business overseas had more validity. “We need to be careful,” she said. “A lot of this stems from the derivatives issue and there you had a market that developed for decades without any regulatory structure at all so building one now is complicated and will take some time.”