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Lawmakers press regulators to index thresholds and rework Basel III to protect community banks
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Summary
At a House Financial Services hearing, members pushed the Federal Reserve, OCC and FDIC to index prudential thresholds to inflation or GDP, recalibrate Basel III provisions and avoid 'gold‑plating' that could raise capital costs and restrict lending for community banks.
Chairman Sherwin Hill opened the hearing saying the committee’s goal is to reduce ‘‘duplicative or untailored burdens’’ on banks and ‘‘make community banks ... great again.’' The committee pressed regulators on several measures intended to modernize prudential oversight and preserve credit availability for Main Street borrowers.
Vice Chair Michelle Bowman of the Federal Reserve told the panel that the Fed is reviewing its tailoring framework and is “evaluating indexing the thresholds” as part of a broader modernization of the capital and supervisory regime. ‘‘Indexing is a critical part of the regulatory framework,’’ Bowman said, adding that the Fed is reviewing all four capital pillars, including the leverage ratio and stress testing.
Comptroller Jonathan Gould said the OCC is proposing targeted revisions that would make supervision more risk‑based and consistent across programs. He told lawmakers the OCC wants to ‘‘restore balance, reset our risk tolerance, focus supervision on material financial risks, and free banks to lend, invest, innovate, and grow responsibly.’’
Members repeatedly referred to the 2019 enhanced prudential standards thresholds (category 2–4) and a separate $10 billion trigger that imposes additional requirements on community banks. Rep. Barr described draft legislation (the Tier Act of 2025) to index thresholds to nominal GDP; Rep. Lucas and others asked whether regulators would adopt automatic indexing to avoid ‘‘bracket creep.’’ Bowman said regulators are ‘‘attuned’’ to risks that calibration could pose for treasury market intermediation and would consider those effects as they finalize proposals.
Lawmakers also urged close scrutiny of the Basel III ‘‘endgame’’ reproposal. Several members, including Rep. Wagner and Rep. Loudermilk, asked regulators to reassess the p‑factor (securitization risk weighting) and other elements that could materially increase capital charges on mortgage and securitized assets. Bowman and Gould said the agencies are taking a fresh look, reviewing comments and will seek evidence‑based calibrations.
On the community bank leverage ratio (CBLR), Bowman said the Fed and interagency partners proposed targeted CBLR changes to expand eligibility and ‘‘provide greater flexibility while preserving strong capital and safety and soundness.’' Several members urged rapid finalization of those rules to give smaller institutions clearer options.
The hearing closed with regulators pledging interagency coordination on indexing, capital review and supervisory appeals. Several lawmakers said statutory fixes — enacted indexing or clearer statutory appeals — may still be needed to lock in long‑term changes.
What's next: Regulators said they plan proposal(s) and further rulemaking and will report back in writing to the committee; Congress may still advance legislation to codify indexing or supervisory appeals.
