House Representatives Want Basel III Withdrawn and Reconsidered
Nearly thirty House representatives called for the immediate withdrawal of the Basel III Endgame proposal and urged the Federal Reserve to submit "any new change through a new notice of proposed rulemaking."
In a letter to Federal Reserve Chair Jerome Powell, the signatories, including House Financial Services Committee Chair Patrick McHenry (R-NC), criticized the proposal for lacking sufficient evidence and analysis to support or justify a complete overhaul of risk-based capital requirements. They argued that the proposed changes, if implemented in their current form, would mark the most significant shift in the US bank regulatory framework since the Dodd-Frank Act. The representatives underscored that the proposal fails to harmonize the interrelationship between risk-based capital requirements and stress capital requirements, leading to potential regulatory inconsistencies. They also criticized the proposal's move to limit or eliminate the use of internal models for calculating credit, operational and market risks.
The representatives expressed alarm over reports that the Federal Reserve might implement a "partial preproposal," suggesting that such a step would be suspect. The representatives insisted on a full withdrawal and re-proposal to ensure compliance with the Administrative Procedure Act's requirements for public engagement and transparency. The representatives warned that proceeding with a partial re-proposal would subject it to potential litigation and would undermine the public's confidence in the regulatory process.
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At a House Financial Services Committee hearing on Monetary Policy, Chair Patrick McHenry argued that "broad and material changes to the Basel III Endgame necessitate a full re-proposal. Full stop."
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The Global Markets Advisory Committee approved (i) a report with recommendations examining the "harmful impact" of the Basel III proposals on the derivatives markets; and (ii) recommendations to "support and facilitate industry implementation of the BCBS-IOSCO [framework] for streamlining of variation margin practices."
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In remarks at AgCon 2024, CFTC Chair Rostin Behnam emphasized the need for prudential regulators to move forward with the Basel III Endgame and G-Sib Surcharge, but to "be mindful about how it is implemented. ... and preserve incentives for clearing and ensure that market participants are not cost prohibited from pursuing effective risk management."
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CFTC Commissioner Summer K. Mersinger asserted that the Basel III Endgame Proposal, if adopted, would have a significant negative impact on derivatives markets.
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Republican members of the House Financial Services Committee urged banking regulators to withdraw their Basel III Endgame proposal. The legislators argued that, as issued, the proposal "lacks justification, lacks rigorous quantitative analysis, and is procedurally flawed."