House Subcommittee Examines Bank Capital Proposal
September 18, 2023
On September 14, the House Financial Services Subcommittee on Financial Institutions and Monetary Policy held a hearing entitled “Implementing Basel III: What’s the Fed’s Endgame?”
- Greg Baer, Bank Policy Institute
- Andrew Olmem, Mayer Brown
- Robert Broeksmit, Mortgage Bankers Association
- Alexa Philo, Americans for Financial Reform
Policymakers and industry witnesses shared their differing perspectives on the banking agencies’ proposed revised bank capital standards. The proposed standards, which target large banks with over $100 billion in assets, will implement the final international Basel III rules and respond to some of the early -2023 regional bank turmoil.
Why it matters: Implementation of the current version of the proposed rule would significantly increase capital requirements for the larger U.S. banks, with negative implications for the cost and availability of credit to U.S. businesses and consumers.
Key themes from the hearing included:
- The proposal does not share the underlying data that served as the basis for the proposed risk weights. (In a letter submitted to regulators on September 12, banking trades argued that the proposal violates the Administrative Procedure Act (APA) because it lacks sufficient public data and analysis. )
- U.S. banks would be at a competitive disadvantage versus European banks given the proposed elimination of internal models in most instances, among other changes.
- Regional banks would be subject to a new set of regulations that are not suited for banks their size.
- The proposed changes could impact the ability of the U.S. to meet requirements of the Inflation Reduction Act (IRA) and climate change treaties.
What they’re saying: Unlike the implementation of Basel reforms over a decade ago, market participants believe there is bipartisan interest in ensuring that this proposal does not restrict capital availability to the U.S. economy.
Additionally, regulators also appear relatively open to feedback. In a statement accompanying the proposal’s release, Fed Chair Jerome Powell noted:
“While there could be benefits of still higher capital, as always we must also consider the potential costs. This is a difficult balance to strike, and striking it will require public input and thoughtful deliberation.”
CREFC is closely monitoring these policy developments and has convened a working group to respond to the proposal. Please contact Sairah Burki at firstname.lastname@example.org if you would like to join this effort.
To watch a webinar CREFC recently hosted on the capital proposal, please click HERE.
Managing Director, Regulatory Affairs
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