English

Top U.S. Bank Watchdogs Defend Capital Regulation Amid Criticism

　　News Summary: In a House Financial Services Committee hearing, top U.S. banking regulators defended their proposal to increase capital requirements for large banks, asserting that it would enhance economic stability despite criticism from some lawmakers.

　　Lead: Top U.S. banking regulators, including Federal Reserve Vice Chair Michael Barr and FDIC Chairman Martin Gruenberg, defended their plan to raise capital requirements for large banks during a House Financial Services Committee hearing on November 15, 2023, arguing that this regulation is vital for financial stability following recent banking failures.

　　Main Body:

　　Regulatory Proposal and Rationale

　　On Wednesday, Michael Barr and Martin Gruenberg appeared before the House Financial Services Committee to address concerns regarding proposed amendments to banking capital regulations. The proposed changes aim to require the largest U.S. banks to hold approximately 19% more in capital, a response to the failures of Silicon Valley Bank and Signature Bank earlier in 2023. Regulators claim these increases are essential for preventing risky behaviors that could endanger the economy.

　　The new regulations tie back to the Basel III framework, which was implemented after the 2007-2009 financial crisis to enhance economic safety and bank resilience. Critics, including several House Republicans and some Democrats, argue that the burden of increased capital could hinder banks' ability to lend, adversely affecting consumers and small businesses.

　　Barr highlighted that the changes are designed to ensure banks possess a solid reserve to absorb losses during financial downturns, thereby enabling them to continue providing essential services to the economy. "The risk calibration would make those banks more resilient so that theyre able to actually provide the services," Barr stated. He also emphasized that the regulatory body is open to input from the industry regarding the proposed plan.

　　Concerns Raised by Lawmakers

　　During the hearing, committee members voiced their apprehensions about the potential implications of the regulatory overhaul. Ranking member Patrick McHenry cautioned that the capital overhaul could lead to unintended consequences, potentially raising costs for consumers, particularly those in lower-income brackets seeking loans. He underscored the concern that the regulations might inhibit lending, which could have a cascading effect on the broader economy.

　　Additionally, some lawmakers contended that the new requirements could disproportionately impact the trading activities of large banks and securities underwriting, leading to higher operational costs passed onto small businesses and consumers.

　　Workplace Misconduct Allegations

　　Aside from the capital regulations discussion, Chairman Gruenberg also faced inquiries regarding allegations of workplace misconduct within the FDIC. A Wall Street Journal report suggested a hostile environment for women within the agency. Gruenberg confirmed that an investigation is underway and committed to sharing findings within a fortnight, indicating that the FDIC remains committed to addressing the workplace culture issues raised.

　　Conclusion

　　The ongoing debate surrounding banking capital requirements underscores a critical tension between regulatory oversight and economic growth. While regulators assert that higher capital reserves will enhance stability, critics warn of the adverse effect on lending practices. With the Basel III endgame looming, which is set to fully implement by mid-2025, the balance between financial health and economic vitality remains a contentious issue. The regulatory landscape will continually adapt to address these challenges as lawmakers and stakeholders examine the potential impacts of reforms on both the banking system and the economy at large.

　　Sources