In a speech Monday before the Risk Management Association in Baltimore, FDIC Chairman Sheila Bair said she is confident any costs associated with implementing the new capital requirements under Basel 3 can be absorbed by the financial institution itself. Furthermore, Bair said the recession is now impacting the ability of governments to effectively issue bonds. "For many U.S. consumers and businesses, credit dried up in the financial crisis when securitization markets shut down, financial institutions tightened standards, and the value of real estate collateral declined," she said. "Governments, too, now face heightened scrutiny of their creditworthiness due to the effects of the recession on their balance sheets." Bair was sounding an alarm against a further build up of the bond bubble over the past few years as yields on 10-year U.S. Treasury bonds declined by half. For the moment, investors seem content with the lower risks Treasurys provide. "But what will happen when interest rates inevitably rise," Bair said. "And how disruptive will that process be?" Bair doesn't see a further drying up of lending to U.S. consumers and businesses because of Basel 3 or the eventual rising interest rates. Basel 3 will take years to implement and, during that time, the higher capital requirements will not mean a restriction on lending. The mood of the speech was notably upbeat. Bair referred to a brighter financial future now that reform is beginning to take hold. However, prudence still remain elusive for some, she warned. "But sometimes I wonder: Have lenders really learned their lesson?" she asked. "Just a few days ago, I received a flier from a non-bank mortgage lender offering a 3.75%, fixed-rate program with loans up to 125 percent of appraised value and approval in only 24 hours." Jacob Gaffney is the editor of HousingWire. Write to him.