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Basel III Endgame Proposal Would Harm American Households, Businesses, and the Broader Economy
Capital proposal would cost the economy more than $100 billion annually, increase capital requirements for the nation’s largest banks by 30 percent inclusive of GSIB surcharges
Washington, D.C. – The Basel III Endgame proposal to increase capital requirements for the nation’s largest banks would harm the American economy, undermine U.S. competitiveness, and weaken financial stability, the Financial Services Forum said Tuesday.
Responding to the Basel III Endgame proposal, which would vastly increase capital requirements for the U.S.-based global systemically important banks (GSIBs), the Forum criticized the proposal’s lack of justification for increasing capital requirements and emphasized the substantial economic impacts it would have on the broader economy.
The Forum estimated that the increase in required capital would cost the economy more than $100 billion annually.
“Increasing capital is not free,” Forum President and CEO Kevin Fromer said to the Federal Reserve Board, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. “The costs of the proposed changes would inevitably be borne by American families and business. The largest banks are already well capitalized. This proposal would impose enormous burdens with little or no marginal benefits.”
The Forum’s comments included an analysis that found that, inclusive of proposed changes to the GSIB surcharge, the proposal would increase required capital for U.S. GSIBs by 30 percent, greater than the percentage increase estimated by the agencies. Required capital would rise by 25 percent due to the endgame proposal itself and by 5 percent because of the GSIB surcharge proposal.
“The proposal offers no reason or justification for material increases in capital requirements,” Fromer said. “To the contrary, the strength and resilience of the largest banks has been well established and put to work for the good of the American economy through a pandemic and the resulting period of economic challenge, including a series of regional bank failures that Forum members helped contain. This proposal fails to recognize the strength of our system and the costs of excessive, unwarranted regulation.”
In addition, the proposal would weaken the competitive position of U.S. banks, their customers and the economy. The United States has applied more stringent capital requirements to its GSIBs than international standards call for and greater than other jurisdictions require of their GSIBs. While the U.S. proposal would result in a 25 percent increase, the same international standard will result in an increase of 3.2 percent for U.K. banks and 5.6 percent for EU banks. The U.S. proposal inexplicably goes beyond the international standard and includes other changes that would further disadvantage American businesses, which operate in, or export into overseas markets. The Basel III Endgame was intended to achieve comparable requirements across jurisdictions, not to materially increase required capital. The U.S. proposal is wholly inconsistent with these objectives.
Adoption of the proposal would also exacerbate the movement of banking services outside the regulated banking system, undermining consumer protections and weakening financial stability.
Given the complexity of the proposal, its many and significant negative impacts, and the lack of evidence in support of its changes, the agencies must repropose the rule and include the motivations, data and analysis that demonstrate the need for proposed changes.
The Forum’s comments can be found here and an accompanying fact sheet can be found here.
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The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States. Forum member institutions are a leading source of lending and investment in the United States and serve millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, financial inclusion, deep and liquid capital markets, a competitive global marketplace, and a sound financial system.
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