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Industry and regulators debate Basel III 'endgame' and capital costs for lending
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Summary
SIFMA, bank trade groups and others told the committee that the Basel III endgame and overlapping U.S. capital and stress‑test regimes risk raising banks' effective capital costs and could reduce lending, while other witnesses said strong capital standards helped limit systemic risk.
A major focus at the hearing was the interaction of international and U.S. capital rules and how regulators should calibrate capital requirements to preserve lending while maintaining safety and soundness.
Ken Benson of SIFMA warned that the Basel III endgame proposal would push aggregate U.S. bank capital beyond historically high levels and that some trading‑book and securitization treatments risked ‘‘double counting’’ when layered on top of U.S. stress‑test and liquidity regimes. Benson said that elevated capital charges in trading activities would ripple into higher costs for securitization and could reduce small‑business and mortgage financing.
Paul Kubiak and other academic witnesses argued that higher capital and liquidity standards have made large banks more resilient, pointing to larger buffers since the crisis. Kubiak noted, however, that regulators failed to detect and remediate interest‑rate risks that contributed to the March 2023 regional bank disruptions; he argued better alignment of regulatory tools was needed.
Members raised the consequences for credit formation. Chairman Hill and other Republican members asked whether capital increases make it harder for community and mid‑sized banks to lend, while Democrats stressed the role of capital in avoiding taxpayer bailouts. Several witnesses urged the Federal Reserve and banking agencies to harmonize stress‑test assumptions and Basel proposals to avoid unintended higher effective capital charges.
There was particular attention to the Fed’s planned review of the fundamental review of the trading book and the endgame Basel proposal. Witnesses urged Vice Chair for Supervision to consider cross‑rule interactions and recommended continued dialogue with market participants before a final rule.
No votes or regulatory actions were taken. Members and witnesses asked for additional comment letters, detailed impact studies and clearer communication from regulators on how proposed changes would affect lending into mortgages, small business and securitization markets.
