As the Federal Reserve undertakes a review of bank capital requirements, it must remember that those requirements need to be risk-based and tailored to an institution’s activity, size and complexity, Republicans on the Senate Banking Committee said Friday in a letter to the agency.
Last year, Fed Vice Chairman for Supervision Michael Barr signaled that significant changes are likely to result from a “holistic review” of capital standards that banking regulators are currently undertaking. In their letter, Republicans said Barr’s suggestion to increase capital requirements appear unnecessary as banks withstood “the real-life stress test” that was the COVID-19 pandemic. Also, increasing capital requirements during an inflationary cycle may have serious consequences for lending, market liquidity and the broader economy, they added.
“Should the vice chair of supervision move forward with this ‘holistic’ review, the analysis should follow the letter of the law, fully assessing the impact on economic growth, cost of credit, and the availability of critical banking products and services,” the senators said. “As the Federal Reserve conducts its review, it must be fully transparent with Congress and the public throughout the process.”
