House Subcommittee Hearing on Basel Re-Proposal
October 1, 2024
Last week, the House Financial Services Subcommittee on Financial Institutions and Monetary Policy held a hearing focusing on the Basel Endgame re-proposal.
Why it matters: The Basel hearing provides some insight into the political reaction to the re-proposal. Republicans were still largely skeptical of the need for more capital, more progressive Democrats still want more bank capital, and some moderate Dems still have concerns about the changes.
The subcommittee hearing was the first since Fed Vice Chair of Supervision Michael Barr announced his recommended re-proposal on the capital rules, though the text of the re-proposal is still forthcoming. The hearing featured witnesses from industry groups and law firms with interests in the proposal.
In his opening statement, Subcommittee Chair Andy Barr (R-KY) acknowledged that while some of the previewed changes to the Basel III endgame proposal are encouraging, there remains “considerable work” when it comes to the proposal’s market risk component.
- In a question to Kenneth Bentsen, president of the Securities Industry and Financial Markets Association (SIFMA), Barr asked how a failure to revise market risk aspects of the proposal could be a “bad idea from the standpoint of economic growth.” Bentsen explained that regulators could risk raising the cost of engaging in capital market activities or potentially cause banks to pull back.
- Across the aisle, Rep. Maxine Waters (D-CA) warned about the risks associated with deregulation. Dr. Marc Jarsulic, Chief Economist at the Center for American Progress, added that regulation allows for self-insurance, stating, “When things go wrong, banks can be resilient and recover, and allow the system to remain stable.”
- Rep. Greg Meeks (D-NY) however expressed concerns about the impact higher capital charges could have on SMEs and other non-public entities, adding that he hopes that regulators “strike the right balance” when it comes to bank capital.
- Additionally, Rep. Juan Vargas (D-CA) inquired about the unintended effects the proposal could have on residential mortgages. Bentsen explained that the proposal would make it more expensive to participate in various types of mortgage lending, including conventional loans through GSEs, FHA, and other similar entities.
- On a broader level, Rep. Sean Casten (D-IL) discussed the benefits of U.S. regulators engaging with international partners to minimize global risk. Dr. Jarsulic agreed with Rep. Casten, adding that international organizations are “mechanisms for encouraging voluntary coordination on the improvement of financial regulation.”
Contact David McCarthy (dmccarthy@crefc.org) with questions.