Washington, D.C. — Bank Policy Institute President and CEO Greg Baer issued the following statement on today’s Basel proposal from the federal banking agencies:
Today’s proposal would unnecessarily increase the amount of required capital for banks, with resulting harm for consumers and small businesses and a continued migration of financial activity into unregulated parts of the financial sector. The dramatic capital increases proposed today reflect a bad deal cut in Basel without public transparency or Congressional input, with an addition of unnecessary layers of capital solely for banks operating in the United States. A proposal of this magnitude requires a robust and thorough economic analysis, which this one lacks.
The proposal would make the United States the only major banking center where credit risk for capital purposes is assessed solely by federal regulators and not with agency-supervised bank models or use of external credit ratings. Compounding the problem, the Federal Reserve’s stress capital charge would be layered on top of higher Basel requirements, and continue to operate without transparency or accountability for how that charge is determined. As a result, while the agencies talk of conformity to Basel norms, they have produced something quite different from the system designed there, and one with government playing a far larger role in determining the availability of credit. Most notable is the bottom line: at the time the Basel agreement was announced in 2017, global regulators stated that it would not increase capital requirements; now, the U.S. agencies have chosen to use it to impose a significant capital increase on banks operating in this country.
For the vast majority of mid-sized and regional banks that managed their risks well, today’s proposal represents a de facto repeal of a tailoring law designed to allow them to compete, done at the worst possible time. The Basel standard was never designed with them in mind.
Today’s proposal also represents an effort to recast the narrative about the March 2023 bank failures, which resulted from a failure to manage and examine interest rate risk and deposit concentration risk. In a regulatory non sequitur, today’s proposal would raise capital requirements for operational risk and market risk, and add additional charges for credit risk on top of Basel.
And of course, today’s announcement is continued good news for private equity, private debt, hedge funds, finance companies and other unregulated firms, which are exempt from the Basel experience and will continue to attract what used to be the business of banking, at higher costs to consumers and greater instability for markets.
About Bank Policy Institute.
The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.