House subcommittee debates 'right‑sizing' bank capital rules amid AI and mortgage concerns

WASHINGTON — A House Financial Services subcommittee on Monday examined a forthcoming reproposal of the Basel III "endgame," with witnesses and lawmakers sharply divided over whether U.S. capital requirements are too high, too low or insufficiently tailored.

Chairman Andy Barr opened the hearing by urging a "right‑sized" capital framework that protects financial stability without "gold plating" international rules or needlessly constraining credit, particularly for community and regional banks. Ranking Member Dr. Bill Foster and Rep. Maxine Waters warned that loosening capital could leave banks less resilient and urged stronger deposit insurance and crisis tools.

Witnesses delivered divergent assessments. Margaret Tyre of Davis Polk said capital is one tool among many and recommended tailoring based on bank size, complexity and risk while improving supervision and conducting rigorous data‑driven analyses before any final rule. "Leverage ratio became the binding constraint as Treasury markets expanded," she said, urging a careful rethink of that metric.

Amanda Eversol, president and CEO of the Financial Services Forum, representing U.S. global systemically important banks (GSIBs), said U.S. GSIBs are highly capitalized but cautioned that excessive capital increases carry significant economic tradeoffs. She asked regulators to harmonize the U.S. GSIB surcharge with international practice and increase transparency around stress‑testing models.

Andrew Ullman of Mayer Brown emphasized simplicity, better supervision and statutory tailoring mandates established in Dodd‑Frank and subsequent laws. Mike Flood of the U.S. Chamber said higher capital can raise borrowing costs and reduce small business credit availability; he cited rising risk weights on drawn and undrawn lines of credit as examples that can shrink or make lines more expensive.

Simon Johnson, a professor at MIT Sloan and co‑chair of the CFA Institute Systemic Risk Council, argued that leverage protections for big banks have eroded and that the worldwide arrival of agentic artificial intelligence could speed runs and increase volatility, strengthening the case for more loss‑absorbing capital for the largest institutions.

Lawmakers pressed witnesses on several recurring themes: whether risk weights in the 2023 proposal unfairly penalized mortgages and private small businesses, whether threshold indexing is needed to avoid "cliff effects" that force banks into higher regulatory categories, how community bank leverage ratio (CBLR) reforms might raise takeup, and whether tailored calibration can preserve affordable credit for Main Street. Rep. Waters and others also highlighted gaps in deposit insurance and previewed legislation (HR 4551) to expand temporary emergency coverage for small business deposits.

Witnesses generally called for the reproposal to be grounded in rigorous cost‑benefit analysis and empirical data, to revise mortgage and warehouse lending risk weights if necessary, and to consider higher capital charges for crypto exposures. On AI, several witnesses and members agreed the technology could compress the speed of market reactions and runs, creating new systemic vulnerabilities.

The committee did not vote on legislation or issue formal directives; Chairman Barr asked for written responses from witnesses by Jan. 15, 2026, and adjourned the hearing.

The hearing highlighted cross‑cutting tensions for regulators: balancing safety against credit availability, calibrating the GSIB surcharge relative to global peers, updating supervisory practice to reduce costly checklist burdens on smaller banks, and preparing for technological changes that could reshape run dynamics.