McHenry, Financial Services Republicans Demand Prudential Regulators Withdraw Basel III Endgame Proposal

Letter

"Over the past two months, your agencies have released numerous proposals that lack sound rationale and economic analysis. Your opaque approach raises serious questions about the long-term impact these actions will have on our financial system and economy more broadly. As currently drafted, these proposals will undermine core principles and risk models that serve as the foundation of our financial system.

Republicans have raised concerns about your motives for such proposals from the start. Vice Chair Barr, your announcement that the Federal Reserve's (Fed's) Vice Chair for Supervision would conduct a "holistic review of capital standards' was the first signal that politics would compete with data when it comes to supervising the financial system.

The need for a "holistic capital review' was unclear given the strong performance of banking institutions during the COVID-19 pandemic -- a position later confirmed by the Fed's own stress tests. Despite repeated requests for information by Congress, details about the holistic review remain scarce. It wasn't until the release of the Vice Chair for Supervision's self-assessment of the Silicon Valley Bank (SVB) failure that the Fed's political motives were made clear.

It appears your goal is to effectively rescind S. 2155, the bipartisan Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 through your recent underdeveloped Basel III Endgame proposal. The deficient proposal would massively raise capital requirements and has been appropriately met by opposition from members of the Federal Reserve Board and FDIC Board. Even Governors at the Federal Reserve who supported releasing the proposal for comment expressed deep reservations about its impact.

The Basel III Endgame proposal is problematic in many regards, specifically in its scope, depth, motivation, and process:

BREAK IN TRANSCRIPT

Given those fatal problems with your Basel III Endgame proposal, we urge that it be withdrawn. The proposal should be replaced with one based on sound, objective analysis supported by data, not one plagued by politics. It's critical that you engage with Congress and stakeholders, as well as the talented pool of analysts within your agencies and Boards. Your agencies could then arrive at justifiable regulatory changes that address immediate problems and adhere to your missions of promoting safety, soundness, and stability in the financial system."

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