The proposal Basel III endgame capital rules are “excessively calibrated and disproportionate to risk” they seek to address, and that could have unintended consequences for the financial system, Federal Reserve Governor Michelle Bowman said today in remarks to the Texas Bankers Association. In a speech on financial stability, Bowman warned that overregulation and supervision disproportionate to the risk that regulators seek to address could have negative outcomes. She specifically pointed to the proposed capital rules as an example of excessive regulation.
“As I have discussed in the past, if implemented as proposed, the effects are predictable: higher costs of capital for banks, higher costs of services for customers, less availability and narrower selection of services, and increased concentration in the providers of financial products and services,” Bowman said. “Driving risk out of the regulated banking system could lead to marginal improvements in bank safety and soundness, but the consequences for financial stability could be severely adverse.”
The proposed capital rules “are only a subset of regulatory proposals for change that involve the challenging task of achieving the right calibration to risk over time,” Bowman added. “A glut of new bank regulatory reforms and supervisory guidance raise this concern, including revisions to the GSIB surcharge, new long-term debt requirements, amended resolution plan guidance, contemplated changes to the regulatory approval of merger and acquisition activity, and revisions to the interchange fee cap. The cumulative effects of these regulatory proposals are significant.”
