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Experts Urge Caution on Capital-Rule Changes, Point to Basel and 2023 Bank Failures
Summary
Panelists told the Federal Reserve that capital rules should remain risk-sensitive and transparent; several warned against loosening standards after the March 2023 bank disruptions and urged careful treatment of leverage ratios and stress-testing to avoid double counting risks.
A panel of industry and academic experts advised the Federal Reserve and sister agencies to preserve rigorous, risk-sensitive capital standards while addressing known frictions in the current framework.
Nicholas Verome of the Peterson Institute for International Economics said the March 2023 bank crises “has been a failure of both supervision and regulation,” and cautioned against broad deregulatory moves while cross-border and systemic risks are rising. Verome urged continued adherence to the Basel framework and attention to international spillovers.
Tyler Mandre of the American Bankers Association said leverage ratios were intended as a backstop, not a binding constraint, and that in practice they can discourage low-risk activities such as holding reserves or facilitating flight-to-safety flows. Mandre and other panelists called for recalibration and transparency in stress-testing assumptions to avoid double counting risks across buffers and capital rules.
Panelists also discussed elements that may be duplicative (for example, interactions between single-counterparty credit limits and other post-crisis reforms) and urged harmonization with international standards to avoid ‘‘gold plating’’ that imposes extra domestic costs without commensurate risk reduction.
Next steps: The witnesses said they welcome recent proposals that increase transparency and asked agencies to continue public outreach and interagency coordination as they finalize capital reforms.
