BPI and Coalition of Trades Comment on Basel III Endgame Proposal

Ladies and Gentlemen:

The Bank Policy Institute, the Financial Services Forum, the Securities Industry and Financial Markets Association and the U.S. Chamber of Commerce1 are filing this comment on the joint notice of proposed rulemaking issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency that would amend the capital requirements applicable to large banking organizations and those with significant trading activity.2 As described below, any final rule adopted based on this proposal would violate the Administrative Procedure Act,3 and the proposal’s defects can only be cured through proposal of a new rule.

Risk-based capital requirements are based on ratios that take a bank’s regulatory capital4 as their numerator and risk-weighted assets as their denominator; the proposal largely focuses on the latter and would fundamentally change how risk-weighted assets are calculated for nearly every type of asset and exposure. The risk weight attached to each asset has a direct and significant effect on whether a bank chooses to hold and how it prices that asset; collectively, those risk weights drive the bank’s overall capital requirement and its ability to compete for capital against other companies. Simply put, the stakes of how bank assets are risk-weighted are extremely high for banks, consumers, businesses and other bank customers, and the U.S. economy.

To read the full comment letter, please click here, or click on the download button below.

[1] See Appendix for more information on the Associations.

[2] See Regulatory Capital Rule: Large Banking Organizations and Banking Organizations With Significant Trading Activity, 88 Fed. Reg. 64028 (Sept. 18, 2023) [hereinafter the “Proposal”].

[3] 5 U.S.C. § 551 et seq.

[4] Regulatory capital primarily consists of shareholder equity in the bank.