Lawmakers demand banking regulators withdraw proposed capital requirements

Republicans on the House Financial Services Committee today called on federal regulators to withdraw proposed capital requirements for banks with more than $100 billion in assets. In a letter released in conjunction with a subcommittee hearing on the proposal, the lawmakers argued the regulators have not been forthcoming with the justifications or data behind the rulemaking and other recent regulatory changes.

“Over the past two months, your agencies have released numerous proposals that lack sound rationale and economic analysis,” the lawmakers said. “Your opaque approach raises serious questions about the long-term impact these actions will have on our financial system and economy more broadly. As currently drafted, these proposals will undermine core principles and risk models that serve as the foundation of our financial system.”

The proposal would implement the so-called “Basel III endgame” standards while eliminating the practice of relying on banks’ internal risk models. House Republicans were particularly critical of Federal Reserve Vice Chairman for Supervision Michael Barr’s recent holistic review of capital standards, saying the need for the review was unclear given the strong performance of banking institutions during the COVID-19 pandemic. They also argued that regulators were trying to negate legislation passed by Congress in 2018—SB 2155—that gave agencies more leeway in tailoring regulation for financial institutions based on asset size.

Committee Democrats have been more supportive of the proposed capital standards, although some raised potential problems during today’s hearing, such as its potential negative effects on clean energy tax equity investments. Also, Rep. Bill Foster (D-Ill.) criticized the Fed for failing to provide the key assumptions it used when conducting the holistic review that led to the proposal. “The Federal Reserve’s response to date has not included this information that we asked for, and I urge them to be more forthcoming,” he said.