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Senate exchange spotlights SLR and Basel III as Fed weighs capital-rule changes
Summary
In questioning, Speaker 1 said small banks face heavy regulatory burdens and asked whether adjusting the supplementary leverage ratio would free capital; Speaker 2 said the Fed is working on Basel III and the leverage ratio with OCC and FDIC and expects action in the near term.
Speaker 1 raised concerns that ‘‘banks are facing a record number of regulations’’ and said small community banks were ‘‘especially burdened by compliance costs,’’ arguing that the supplementary leverage ratio (SLR) can act as a binding constraint for U.S. banks.
Speaker 1 asked whether adjusting the SLR would ‘‘free up capital for banks to invest more in treasury markets and other low risk assets that would be beneficial to families and businesses across the country.’’ Speaker 2 responded, ‘‘I would agree. Yes.’’
Speaker 2 framed the Fed’s work as centered on two main elements. ‘‘Well, we're we're looking at basically, the 2 big pieces now are are Basel 3 and the leverage ratio,’’ the official said, adding that the agency expects to ‘‘move on both of those in the relatively near future’’ and will coordinate with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC).
On the history of recent proposals, Speaker 2 said the prior package ‘‘was actually well above Basel minimums’’ and in parts ‘‘gold plated,’’ suggesting the Fed intends to reassess and take a ‘‘fresh start’’ on the Basel III endgame rather than simply recalibrating existing measures.
Speaker 1 pressed on the trajectory of capital requirements, noting they ‘‘have been going up every year’’ and seeking assurance that any holistic review would avoid stifling economic growth. Speaker 2 reiterated the agency’s intent to align risk-based capital and leverage measures so risk-based requirements are the binding constraint.
Next steps described in the exchange included coordination among federal banking regulators and further work on both Basel III implementation and the leverage ratio; Speaker 2 characterized those as priorities the Fed expects to address in the near term.
