House subcommittee slams July 27 capital rules

The July 27 Basel 3 endgame proposals would place the US “ahead in a race to a gold-plated top for global capital requirements and push the US to the bottom for global competitiveness,” said Andy Barr (KY), chairman House Financial Services Subcommittee on Financial Institutions and Monetary Policy, this morning (September 14).

The sub-committee is holding hearings titled “Implementing Basel III: What’s the Fed’s Endgame?”

The proposed new rules were introduced by bank regulatory agencies, including the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC).

“The proposal would install arbitrary and extreme increases in required capitalization for what regulators, Biden administration officials, and Fed stress tests have said is an already resilient, well-capitalized US banking system,” added Barr.

He went on to say that the lack of unanimity among Fed governors and FDIC directors underscores the partisan nature of the mooted rules and called for the “divisive, underdeveloped, and arbitrary recent Basel III endgame proposal” to be withdrawn.

Before the hearings began, Republicans on the House Financial Services Committee, headed by chairman Patrick McHenry (NC), sent a letter to Fed vice chair for supervision Michael Barr, FDIC chairman Martin Gruenberg, and acting Comptroller of the Currency Michael Hsu, saying “The proposal calls for massive increases in capital requirements on US banks, far exceeding what is required by the Basel 'agreement.' As Fed Chair Powell opined, the proposal 'exceeds as well what we know of plans for implementation by other large jurisdictions.'"

Committee Republicans agree that this will compromise global competitiveness and attempts to portray the proposals as a response to recent bank failures are “misleading.”

Moreover, despite their likely meaningful impact little cost-benefit analysis has been undertaken by the regulators. The letter notes that a “paltry 17 pages” out of a hefty 1087-page document are devoted to impact analysis and even then those few pages contain “unsubstantiated assertions and citations to studies that often are too outdated to be relevant.”

Given these “fatal” shortcomings, the proposals should be withdrawn, they say.

The comment period for the July 27 proposals lasts until the end of November.

Anecdotal evidence suggests that banks are retrenching from lending in a number of different markets across the US. Moreover, the proposals now draw an larger number of banks than hitherto into its net as they apply to banks with assets over $100bn, rather than $250bn.

Simon Boughey