House Financial Services Committee Hears Testimony on Raising Bank Capital Requirements

The House Financial Services Committee heard testimony on a joint proposal from the Federal Reserve Board, FDIC and OCC that would increase bank capital requirements consistent with standards issued by the Basel Committee on Banking Supervision (see related coverage).

At the hearing, the following witnesses testified:

• Bank Policy Institute President and CEO Greg Baer. Mr. Baer asserted that the proposal would have failed to keep Silicon Valley Bank safe. He also criticized the proposal for (i) taking an approach to assigning risk weights that "stands in contrast" to banking agencies’ existing capital rules and (ii) representing a "de facto agency repeal" of Congress’s decision to tailor regulatory requirements by bank size and complexity. Mr. Baer also said that the proposal will impose "massive" costs on the economy.
• Mayer Brown Partner, Andrew Olmem. Mr. Olmem emphasized the "significant, material divergences" the proposal contains from the framework issued by the Basel Committee, including an absence of data or analysis showing a need for "substantially" increasing capital requirements. He said that the proposal would negate the banking agencies’ prior stance on capital requirements, which had previously described current capital levels as "appropriate." Additionally, Mr. Olmem said that the "rushed nature of the Proposal is counterproductive" and that an Advance Notice of Proposed Rulemaking should have been issued.
• Mortgage Bankers Association ("MBA") President and CEO Robert Broeksmit. Mr. Broeksmit stated that the MBA "strongly opposes" aspects of the proposal, including the increase in risk weighting on single-family mortgage loans held by covered banks which he said goes beyond the framework issued by the Basel Committee.
• Banking, Systemic Risk, Economic Justice & Racial Equity, Americans for Financial Reform Alexa Philo. Ms. Philo lauded the proposal for "robustly implementing the Basel III Endgame and restoring enhanced capital requirements for Category IV banks" by implementing "more adequate capital levels that more accurately reflect risk-taking activities and systemic risk profiles." She pointed to the bank failures in early 2023 as showing that "a bank can be well capitalized on paper but still lack a sufficient capital cushion."