Federal Reserve Vice Chairman for Oversight Michael Barr speaks with Federal Deposit Insurance Corporation Chairman Martin Gruenberg (left) and Under Secretary for Domestic Finance Nellie during a Senate Banking, Housing and Urban Affairs Committee hearing. – Talk to Mr. Liang. Congressional committee investigations into the failures of Silicon Valley Bank and Signature Bank ushered in a clash over the role of financial regulation in the second-largest bank failure in U.S. history. Samuel Corum – Bloomberg – Getty Images – Getty Images
The economic instability of the past three years has taken a heavy toll on many Americans, testing the resilience of household finances and businesses alike. During this period, major banks, fundamentally strengthened by a series of changes, provided huge amounts of credit, helped customers weather uncertainty, and helped by stabilizing the broader banking sector at critical moments. It has served as a source. Now, as the CEOs of these banks gather on Capitol Hill, Congress must ask itself whether the proposed capital controls are putting the essential operations of these banks at risk. .
The capital control plan, known as “Basel III Endgame,” would increase capital requirements for the eight largest U.S. banks by more than 20%. This is an overreach, considering that the quality capital of these banks has tripled over the past 15 years. As Federal Reserve Chairman Jerome Powell has pointed out, higher capital requirements increase the cost of credit and reduce access to credit.
The plan is sure to further increase the burden of post-pandemic interest rate hikes, especially for low-income households. Americans will find it more difficult to take out loans, secure mortgages, and save for retirement and their children’s college educations.
The impact is not limited to individual consumers. Small and medium-sized businesses that rely on credit and farmers who need funding for operations and equipment will find it difficult to secure the financing they need.
Opposition to this proposed rule has been loud from both the left and the right. Bipartisan agreement is rare these days, so the growing coalition of policymakers, advocacy groups, and community leaders warning of the negative effects of stricter capital requirements is something to behold. isn’t it. Sen. Mark Warner (D-Va.) highlighted the combined effects of tighter capital standards, higher interest rates, and turmoil in the commercial real estate market that could create a “perfect storm.” Sen. Jon Tester (D-Mont.) said he is concerned about how this will affect working Americans, saying he is concerned about how this will affect working Americans, saying, There are some concerns about how this will affect businesses and access to credit.” , and the overall vibrancy of our capital markets. In a letter to regulators, 39 Senate Republicans, led by Sen. Tim Scott (RS.C.), emphasized the resilience of the nation’s well-capitalized banking system and warned that the proposal would have a negative impact on the economy. On the other hand, he argued that credit costs would rise and credit guarantees would become more difficult. It’s available for millions of Americans.
Given these concerns, it’s natural to ask why a capital increase of this magnitude is necessary. But no one seems ready to provide an answer. On the contrary, public evaluations of the banking sector, especially the major banks, are mostly laudatory. The fact is that all of the notional losses this proposal seeks to address have been experienced in real-life stress tests such as the pandemic, and large U.S. banks are able to support the economy despite these losses under current capital requirements. We continue to support them.
Chairman Powell reflected on years of reforms under Dodd-Frank and Basel III and emphasized improving the resilience of the banking system. I think it has become a source of strength through the past few events. ”
The future path of the U.S. economy is far from certain, and hard-working Americans will pay the price if regulators impose new and unreasonable capital requirements. Policymakers are making significant changes to Basel III final stage proposals to ensure the banking sector continues its important role in the U.S. economy and avoid taxing consumers and businesses with little benefit to financial stability. need to be requested.
Kevin Fromer is President and CEO of the Financial Services Forum.
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