Lawmakers raise concerns about proposed capital standards

In a series of letters this week, Republican and Democratic lawmakers in the House and Senate expressed concern that the proposed Basel III endgame capital requirements could have negative consequences on the banking sector and broader U.S. economy. Among the lawmakers who commented were 11 members of the House Financial Services Committee, who asked banking agencies to consider the effects of the proposed rulemaking on a range of capital market activities as well as on investors, consumers and businesses.

“We urge you to continue to do your best to have capital requirements that reflect the actual risk of a bank asset or activity and weigh the societal benefits against any adverse economic impacts,” they said. Other lawmakers who submitted comments include Sens. Joe Manchin (D-W.Va.), Tim Scott (R-S.C), Krysten Sinema (I-Ariz.) and Mike Crapo (R-Idaho).

In related news, Reps. Andy Barr (R-Ky.) and Bill Foster (D-Ill.) said today during a U.S. Chamber of Commerce event that the proposed requirements would reduce the availability of business credit and possibly lead to more bank consolidation.

“The purpose of the Basel III endgame was to actually elevate the standards for European institutions to make them comparable to U.S. standards, but that’s not that’s not what the proposal that was released July 27 [2023] actually does, or what it proposes to do,” said Barr, who is chairman of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy. “It’s a 1089-page monstrosity that would dramatically increase costs and decrease the available ability of credit for a whole range of businesses across America.”

Foster, who is the subcommittee’s ranking member, pointed to his experience co-founding a lighting equipment company at age 19. The company reached out to multiple banks to find the best terms on loans. Foster said he is worried that the requirements could lead to more bank mergers, reducing the competition that helped his business find funding. “The most important question that I think is likely to remain unanswered, no matter how we approach this, is how will the entire business ecosystem readjust to these bank capital requirements?” he said. “There’ll be all kinds of secondary, unanticipated effects.”