By Yalman Onaran and Alison Vekshin
Christopher Dodd and Barney Frank, authors of the U.S. financial overhaul, plan hearings on the status of global talks to revise bank-capital standards amid worries that proposed rules are being watered down.
"I am concerned the recent proposals out of Basel will result in weak and perhaps even nonbinding provisions that provide credit to banks for holding forms of capital that have little or no value in absorbing losses," said Senator Ted KAUFMAN, Democrat of Delaware. "The financial reform bill includes only a promise of higher capital requirements for U.S. banks, which we were told were going to be negotiated on an international level."
The Senate Banking Committee, chaired by Dodd, will hold the discussions on the Basel process in September, said Sean Oblack, a spokesman for the Connecticut Democrat. Frank, the Massachusetts Democrat who heads the House Financial Services Committee, also plans to hold a hearing on the subject, said spokesman Steven Adamske. Neither panel has set a date nor decided who will be asked to testify.
Congress is turning its attention to global rule-making after having completed its financial reform efforts earlier this month, capping almost two years of partisan and intra-party fighting. The Basel Committee on Banking Supervision this week relaxed some of its capital and liquidity proposals, winning praise from banks worldwide. The negotiations are scheduled to be concluded by November.
"The hearing is our idea and will be part of our examination of the implementation of Dodd-Frank, including international regulatory harmonization," Oblack said in a statement.
Call for a Hearing
Last week, Texas Representative Randy Neugebauer, a Republican, called on Frank to set up a hearing on Basel, saying Congress must know more about the process and its potential impact on the U.S. financial system.
The new rules, informally known as Basel III, would force banks to double their capital levels, some analysts expect. Since the onset of the credit crisis in 2008, U.S. voters favor tougher bank regulations, opinion polls show.
Some European governments are bowing to pressure by their banks as the region's economic recovery stalled. France and Germany have led efforts to weaken the regulations proposed by the Basel committee last year, according to bankers, regulators and lobbyists involved in the talks.
The Basel committee said this week it agreed to continue allowing some assets, including banks' minority stakes in other financial firms, to count in part as capital, reversing a plan to ban their use. It also expanded the definition of what counts as liquid assets and gave banks until 2018 to comply with a new leverage ratio designed to rein in risk-taking.
A long-term liquidity ratio that analysts estimated would have forced banks to sell more than $4 trillion of debt also won't be imposed for eight years.
"The U.S. must provide strong leadership in the Basel negotiations or we will be left with international bank standards that once again are based on the lowest common denominator," KAUFMAN, who has spoken out on the Basel process before, said in an e-mail message.
U.S. lawmakers held similar hearings in 2005 and 2006, after the committee of regulators and central bankers approved standards known as Basel II. Congress was seeking to gauge the impact of proposed rules on U.S. banks.
"Basel and capital requirements are not something that have been focused on on Capitol Hill for years and years," Frank Kelly, head of government affairs in the Americas for Deutsche Bank AG, told analysts on a conference call. "I think most members of Congress don't know what Basel is."
The Basel II rules announced in 2004 are still being implemented by U.S. banks, a process that won't be completed until the first quarter of next year.