The Senate Banking, Housing, and Urban Affairs Committee recently held a hearing on the Federal Reserve’s semiannual monetary report to Congress. During this session, Federal Reserve Chairman Jerome Powell testified before the committee.
In July 2023, regulatory bodies including the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) proposed regulations to implement components of the Basel III agreement aimed at raising bank capital requirements. This proposal intends to establish standards for capital reserves, liquidity, and leverage at financial institutions. Large banks are expected to transition to this new framework by July 1, with full compliance required by July 1, 2028.
U.S. Senator Kevin Cramer questioned Powell about advancing a new Basel III proposal and its impact on regional and community banks. Cramer emphasized competition within the banking system: “Specifically, how would an updated regulation impact the ability of regional banks to compete with big Wall Street banks…a competitive system is really important.”
Powell responded that U.S. banks are well-capitalized and that Basel III was not intended as an exercise in raising capital for U.S. banks: “In terms of your [regional banks], they don’t face the G-SIB [global systemically important banks] surcharges…we need those banks to be healthy and profitable because we need them to compete with the G-SIBs.”
Cramer further asked Powell if there were measures in place to maintain a competitive banking environment rather than leading towards consolidation into fewer large entities: “You think twice before you impose…you want to be careful not to just think we should do exactly the same thing [to regional and community banks].”
Following Basel III’s introduction, Cramer has actively voiced his concerns over its potential impacts on consumers and smaller financial institutions. In January 2024, he joined two letters requesting withdrawal of certain proposals due to their potential adverse effects on mortgage loans among other areas.
