Barr Delivers Opening Remarks at Hearing to Examine Insufficient Analysis in the Biden Administration’s Basel III Endgame Proposal
Washington,
January 31, 2024 -
Today, the House Financial Services Subcommittee on Financial Institutions and Monetary Policy, led by Chairman Andy Barr (KY-06), is holding a hearing entitled “Rules Without Analysis: Federal Banking Proposals Under the Biden Administration.”
Watch Chairman Barr’s opening remarks here.
Read Chairman Barr’s opening remarks as prepared for delivery:
“An onslaught of significant regulatory proposals has been put forward, driven by Democrat-appointed regulatory officials who have unfortunately injected politics into what used to be an independent rulemaking process.
“Although Congress has repeatedly asked, we have not seen any analysis of why the existing bank-capital framework needs to be overhauled or how the numerous regulatory proposals over the past year will work together, or not.
“Rules without analysis lead to bad policy outcomes and invite mistakes that will later be called ‘unintended consequences.’
“The failure to properly analyze proposed rules and follow administrative procedures represents an abdication of responsibility on the part of those who have made numerous significant, but under-analyzed, new regulatory proposals.
“The most glaring example of this flawed approach to regulation is the major, significant, unmotivated, and under-analyzed Basel III Endgame.
“This proposal involves trillions of dollars in resource allocations and will increase regulatory costs for about $22 trillion in assets–or 80% of U.S. banking assets.
“Despite this substantial impact, the needed analysis seems to be an afterthought and far too many elements of the proposal are arbitrary and capricious.
“Only recently have federal bank regulators gathered data that they should have been obtaining before they proposed the rule.
“Only very recently have Congress and the American people been told that the regulators will do a quantitative impact study, which may be available after the Basel III Endgame proposal’s comment period has ended.
“Whether comments will be accepted and, if so, the timing of the comment period on this quantitative impact study has not been made clear.
“Members of Congress from both chambers and both sides of the aisle have expressed significant concerns about effects of the Basel III Endgame proposal, reflecting the lack of analysis that has been performed to this very day.
“Comments on the Basel III Endgame submitted by a wide range of interests and from across the ideological spectrum also have expressed far-reaching and widespread concerns.
“Most comments express the same concerns we have heard in our Committee, and in this Subcommittee, since the proposal was first put forward.
“The banking system is well capitalized and resilient in stress tests, leading to the question of why Democrat-appointed regulators want to massively ramp up capital requirements and go far beyond what Basel recommends and our competitors are adopting.
“The proposal has virtually nothing to do with the March 2023 banking turmoil, even though Democrat-appointed regulators have unsuccessfully tried to use the March turmoil to justify massive changes to the already gold-plated U.S. capital framework.
“The Basel III Endgame proposal will reduce credit availability and increase costs for consumers, homebuyers, businesses large and small, manufacturers, municipalities, farmers and ranchers, and more.
“The proposal will make U.S. institutions less competitive globally and will chase activities outside of the regulatory perimeter for banks, posing threats to stability, functioning of capital markets, and abilities to hedge risks.
“The bottom line is that the Basel III Endgame proposal contains fatal flaws across the board, and we know nothing about how it would ‘holistically’ interact with the numerous other significant recent and prospective regulatory proposals.
“Those proposals include, but are not limited to, Long-Term Debt requirements, the Community Reinvestment Act, resolution planning requirements, debit card interchange–or Regulation II–and whatever may be forthcoming regarding liquidity requirements and stress testing.
“My message to the Boards at the Fed and FDIC is that merely ‘recalibrating’ treatments of mortgages and green-energy tax credits in the proposal and reducing the punitive and unjustified operational risk penalties in the proposal will not resolve our concerns or fix the remaining significant problem areas in the proposal.
“There are far too many other fatal flaws that need to be addressed, including treatments of market risk, exposures to companies with public listings vs. non-public listing, abandonment of internal models, effective repeal-by-regulation of the tailoring law, and the interplay with stress tests.
“The Federal banking regulators should scrap their faulty Basel III Endgame proposal and reevaluate what, if anything, may need to be done.
“At most, the regulators need to start over, undertake proper analysis, follow proper administrative procedures, and re-propose a significantly different rule.
“As things stand for the onslaught of regulatory proposals, the regulators must provide proper quantitative analysis, follow the Administrative Procedure Act, and stop using our regulatory system to push a political agenda.
“After all, these agencies are meant to be independent, and if they continue to act in a way that threatens this, Congress will act.
“Our regulators can and must start over and do better. There is too much at stake.”
###
