Lawmakers express skepticism about proposed capital requirements

House lawmakers from both parties today expressed skepticism about proposed interagency rules to raise capital standards for larger banks, with Republicans concerned about regulatory overreach and Democrats concerned about the possible unintended effects on other sectors of the economy, such as green energy investment. The House Financial Services Subcommittee on Financial Institutions and Monetary Policy held a hearing on what Chairman Rep. Andy Barr (R-Ky.) said was an “onslaught” of proposed banking regulations, although lawmakers mostly discussed the U.S implementation of the Basel III endgame standards.

“Federal banking regulators should scrap their faulty Basel III endgame proposal and reevaluate what—if anything—may need to be done,” Barr said. “At most, the regulators need to start over—undertake proper analysis, follow proper administrative procedures and re-propose a significantly different rule.”

Committee Democrats were more favorable to the proposed rule but still expressed concern about what it might mean for driving bank customers to the unregulated nonbank market, investment in renewable infrastructure and the availability of affordable housing. “For me, the key issue is not the straightforward effect—it’s the knock-on effects, and those are difficult to predict,” Ranking Member Rep. Bill Foster (D-Ill.) said. “I’ve become a great believer in unintended consequences of regulation. And so the area that I’ve been mainly focusing on trying to understand how banks will change their business in response to these changes in capital requirements.”

“These regulations are being sold as we’re going to harmonize with Europe: ‘It’s Basel. It’s something the whole world is doing,’ when in fact these regulations go far beyond Basel in most cases,” Rep. Brad Sherman (D-Calif.) said. “This is not harmony with Europe. This is an attempt to move toward standards that Europe has.”