SIFMA Encourages Revisions to Basel III Endgame Proposal

In his speech outlining recommendations for a re-proposal of the Basel III endgame, Mr. Barr stated his intention to recommend to the FRB that Category IV firms not be subject to the Basel III endgame changes (subject to potential application of the revised market risk framework where a Category IV firm has significant trading operations). This is interesting given that at the time of Silicon Valley Bank's failure, Silicon Valley Bank Financial Group (the bank holding company the principal subsidiary of which was Silicon Valley Bank) had approximately $212 billion in total assets and was thus a banking organization subject to Category IV capital standards.

In light of Mr. Barr's recommendation, query to what extent the FRB continues to hold the following view expressed by the federal banking regulators: "While the recent failure of banking organizations subject to Category IV capital standards may be attributed to a variety of factors, the effect of these failures on financial stability supports further alignment of the regulatory capital framework across large banking organizations…Failure or distress of a banking organization with assets of $100 billion or more during a time of elevated risk or stress can have significant destabilizing effects for other banking organizations and the broader financial system—even if the banking organization does not meet the criteria for being subject to Category II or III capital standards" (see pp. 64032-33 of the proposing release).

Further, compare Mr. Barr's recommendation with Acting OCC Comptroller Hsu's recent statement that "the time may be ripe for the U.S. banking agencies to consider a framework for formally identifying domestic systemically important banks." (See related coverage.)

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