A House subcommittee today held a hearing on bank capital requirements, with Republican members calling for a “right-sized” framework that doesn’t overly burden smaller institutions and one Democratic leader promising a “fight” against reducing current requirements.
The House Financial Institutions Subcommittee heard testimony from five witnesses on problems with the current capital framework and what could be done to improve it. In opening remarks, Subcommittee Chairman Andy Barr (R-Ky.) said that for far too long, U.S. regulators have forced banks to retain capital at levels that exceed standards in other countries. He pointed to a failed effort under the Biden Administration to implement the Basel III endgame, which was criticized by a wide swath of interests on both sides of the political spectrum.
“We need a framework that is proportional, tailored and grounded in empirical analysis,” Barr said. “We need a framework that recognizes the diversity of the American banking system.”
House Financial Services Committee Ranking Member Maxine Waters (D-Calif.) countered that reducing capital for the largest banks would make them less resilient and more likely to fail. She said the 2008 financial crisis showed what happens when regulatory “guardrails” are removed and instead urged lawmakers to focus on deposit insurance reform.
“And on this issue of capital, and the continued efforts of the Republicans to reduce the capital that the banks should hold, we’re going to have a fight,” Waters said.
Still, not all committee Democrats were on the same page. Rep. Brad Sherman (D-Calif.) framed the debate as a balancing act, with setting requirements either too high or too low having negative consequences for the economy. He didn’t see Basel III’s approach as the right one for the U.S.
“When we look at Basel III’s current configuration, we see a system designed to discriminate against small businesses, new homebuyers and all homebuyers, and U.S. taxpayers for absolutely irrational reasons, except for the fact that the people in Basel all just feel real comfortable with giant corporations and their long-term bonds,” he said.
