Bloomberg News
WASHINGTON — Senate Republicans, led by Sen. Tim Scott, R-S.C., the ranking member of the Senate Banking Committee, wrote to the banking regulators that proposed the Basel III capital rules, asking them to withdraw their proposal and begin a new process.
Republicans and banking trade groups have lobbied hard against the Basel III endgame proposal, largely seen to be spearheaded by Federal Reserve Vice Chair for Supervision Michael Barr, because of the additional capital requirements the proposal would impose. So far, that charge has been led in Congress by House Republicans, specifically Rep. Andy Barr, R-Ky., who leads the House subcommittee on financial services, who has repeatedly asked the Fed to release the economic cost-benefit analysis related to the proposal.
Scott, who recently announced that he is suspending his bid for the 2024 Republican presidential nomination, sent the letter a day before Federal Deposit Insurance Corp. Chairman Martin Gruenberg, acting Comptroller of the Currency Michael Hsu and Vice Chair Barr are set to testify in Congress for their regular oversight. All Republicans on the Senate Banking Committee signed the letter, which echoes the criticisms of Rep. Barr.
“Ultimately, these large increases in capital have not been shown to be evidentially based as the Federal Reserve, FDIC, and OCC have failed to provide proper analysis or data to justify their merits, particularly around the costs they will impose throughout all sectors of the economy,” the Republicans said in the letter. “In fact, we have heard widespread concerns regarding the negative impacts that Basel III could have not only on affordable housing but on mortgage lending writ large, small business lending, and consumer lending.”
The lawmakers said that regulators extending the comment period for the proposal wasn’t enough.
“While we appreciate that the Federal Reserve, FDIC, and OCC have extended the initial comment period and are now conducting a data collection, it is too little, too late,” they said. “A thorough cost-benefit analysis is critical to ensuring that our regulatory regime is based on sound quantitative analysis and should have been conducted well before releasing the Basel III proposal.”
The phrasing of the Republicans’ complaints suggests that lawmakers are prepared to challenge the rulemaking, should they have the votes to do so after the next election. While congressional challenges to rulemaking processes in the bank regulation space are rare, they do happen, and often require building a case that the regulators violated congressional intent, didn’t give stakeholders enough time to comment or didn’t follow procedure in some other way.
In the case of the Basel III rulemaking, Republicans have taken issue with what they describe as a lack of a transparent process, and not receiving any economic analysis that the Fed may have performed on the impact of the rule.
“It is disappointing to see a rule proposed that is over 1,000 pages long, lacking any quantitative analysis to suggest that the rule is even necessary,” the lawmakers said in the letter. “While we heard for many months from Vice Chair Barr that the Federal Reserve was engaged in a holistic review of capital standards, the results of that review have never been publicly disclosed outside of a speech by the Vice Chair summarizing the results.”
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