Senate Republicans Say No to Increased Capital Requirements for Banks

In a letter to Federal Reserve Board ("FRB") Chair Jerome Powell, Republican members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs (the "Committee") warned that increased capital requirements could have "serious consequences" for lending, market liquidity and the broader economy.

The Senators called FRB Vice Chair for Supervision Michael Barr's stated intention to take a "holistic" review of capital requirements "unfounded," pointing out that banks withstood the stresses created by the COVID-19 pandemic. The Senators said that increasing capital requirements could (i) force banks to cut funds that could have been used for financial services offerings, (ii) potentially increase borrowing costs for businesses and families and (iii) potentially decrease investment and economic growth.

The Senators expressed concern about reports of recent efforts made by regulators to "unwind" tailoring provisions under the Economic Growth, Regulatory Relief, and Consumer Protection Act. They emphasized that the Vice Chair for Supervision has an obligation to ensure that the FRB is following the "letter and spirit" of the tailoring provisions in its assessment of capital requirements.

The Senators called for full transparency and a robust analysis from the FRB to both Congress and the public on the impact to economic growth, cost of credit, and availability of key banking products and services should Mr. Barr conduct the review.