ICYMI: House Holds Hearing on Capital Requirement Proposals

This week, the House Financial Services Committee held a hearing on the proposed updates to U.S. capital requirements. Here are the highlights:

Smart capital requirements should enable the flow of credit, allowing Americans to build livelihoods and businesses.

Committee Vice Chair Bill Huizenga (R-MI) stated that the capital standards must be tailored to risk in order to promote lending and investment.

• "Right-sizing bank regulation is critical to ensuring that capital standards are appropriately tailored to risk and do not restrict lending by institutions that play a critical role in supporting our local economies. Capital requirements should promote investment, not compound on one another and impose capital levels well above what actual risk warrants."

Subcommittee on Financial Institutions Chair Andy Barr (R-KY) stated that the capital reforms help reduce unnecessary complexity, and that the committee's goal in evaluating the proposals should be to promote a stable banking system that supports Americans.

• "These proposals reduce unnecessary complexity and gold plating that put U.S. banks at a competitive disadvantage. As we evaluate these changes, our goals remain the same: a strong, resilient banking system that supports American homebuyers, small businesses, and farmers."

Rep. Gregory Meeks (D-NY) expressed concern that new restrictions, like the 2023 Basel proposals, can unintentionally drive up lending costs and thereby potentially harm "communities that too often have been left behind."

• "At the end of the day, this is about getting that balance right. It's about making sure we maintain stability and safety while also allowing access to affordable credit and mortgages, especially for communities that too often have been left behind. When the original Basel III proposal came out a few years ago, my colleagues and I were concerned with the unintended impact of the proposed changes. So we sent letters to the regulators, raising concerns that certain parts of that proposal could drive up mortgage costs, especially for borrowers with smaller down payments, or that it could potentially widen the racial homeownership gap or discourage lending to CDFIs and MDIs. So it's my belief that the economic mobility and the safety and soundness of our financial institutions and banks must be at the center of everything that we do in this committee."

Higher capital restrictions mean higher lending costs and less credit to go around.

Greg Baer, President of the Bank Policy Institute, made clear that higher capital requirements hinder lending.

• "There is no dispute among regulators or serious academics that higher bank capital requirements reduce the availability and increase the cost of bank lending and intermediation."

Robert Broeksmit, President of the Mortgage Bankers Association, emphasized that when safe assets like mortgages have lower capital requirements, banks can offer more mortgages.

• "In plain terms, the less capital a bank has to hold against a safe asset like a mortgage, the more mortgages they can make and the lower the rate will be on those mortgages."

Reginald Griffith, Global Head of Regulatory Compliance for the major agriculture company Louis Dreyfus, testified that burdensome controls lead to less money for farmers and higher consumer prices.

• "When you put overly burdensome controls, you're going to lead to more cost in the system. You're going to lead to less money for farmers. And you're clearly going to lead to higher prices [for] the American consumer."

Well-calibrated capital requirements ensure stability without impeding the ability of Americans to take out mortgages, kickstart businesses, and access a full suite of banking products. Yesterday's hearing showed that experts and members of Congress alike are ready to modernize America's capital rules to promote a safe and strong economy.

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