Who Said What on the Capital Requirements Proposals

Last week, industry voices across financial services, housing, and economic policy submitted comments on the updated set of capital requirement proposals for financial institutions. Across the board, comments were supportive of the updates to the proposals from 2023, while offering targeted improvements to ensure they meet their intended goals. Here's a quick round-up of what comments said across proposals:

Competitive Enterprise Institute: The revised capital proposals represent a significant improvement over the 2023 Basel III Endgame framework by better recognizing the diversity of U.S. banks, though further improvements are needed to support financing and U.S. competitiveness.

• "Both proposals are significant improvements over the Basel III Endgame Framework proposed by the Fed in 2023. That regulatory framework would have significantly shrunk lending and financing activity to the point where it would have harmed, rather than enhanced, financial stability. These proposals, by contrast, recognize the diversity and innovation of U.S. banks and do not try to impose one-size-fits-all rules. However, the GSIB proposal still needs to be improved to allow these banks to fulfill their potential in financing important projects and advancing U.S. competitiveness."

International Swaps and Derivatives Association, the Securities Industry and Financial Markets Association and the Institute of International Finance: The proposal reflects progress, but more risk-sensitive capital requirements would support efficient U.S. capital markets, lower costs for end users, and strengthen market liquidity.

• “Capital requirements that are more risk sensitive promote the efficient functioning of U.S. capital markets (including the market for U.S. Treasury securities), reduce costs for end users seeking to hedge or finance positions, and better support market liquidity. To better achieve these benefits, the final rule should build on the progress reflected in the Proposal by more accurately aligning capital requirements with underlying economic risk, properly recognizing hedging and netting, and supporting prudent risk management and broader public policy objectives."

Investment Company Institute: ICI believes regulators took a constructive approach to recalibrating the capital framework and made significant progress in addressing prior concerns, while also offering additional changes aligned with the agencies' objectives.

• "We commend the Agencies for their constructive approach to revisiting the calibration of the regulatory capital framework. In this regard, we believe that the Proposal makes significant progress in addressing the concerns we highlighted in 2024. In this letter, we identify certain additional changes that would be consistent in the Agencies’ objectives in revising its risk-based capital framework."

Mortgage Bankers' Association: Regulators should tailor the final capital rule to the unique features of U.S. financial markets, including by deviating from the Basel framework where necessary to ensure proper risk calibration.

• "MBA greatly appreciates the efforts the Agencies have made to simplify the U.S. capital framework in the proposed rules. As the Agencies move toward a final rule, it is critically important to consider the unique economic and market framework of U.S. financial institutions. The Agencies have an obligation to deviate from the Basel framework when such deviation is necessary to ensure proper risk calibration for asset classes and exposures that are unique to the U.S. financial markets."

National Housing Conference: The revised capital proposal helps ensure capital standards do not interfere with housing finance and community development in underserved communities.

• "We believe this proposal reflects a balanced and appropriate effort to address capital concerns previously expressed by NHC members by ensuring that capital standards do not unduly interfere with the vital efforts of housing and community development organizations working to meet the needs of underserved communities. The recommendations in this letter are offered with consideration of the work that our members do in underserved and disinvested communities alongside the vital role that large financial institutions play in the housing finance market, particularly as Basel III is an important component for banks that are also required to meet Community Reinvestment Act (CRA) obligations"

National Taxpayers Union: The revised capital proposal reflects a more careful, sensitive recalibration of the U.S. capital framework while maintaining capital levels above pre-2020 standards.

• “The revised proposal reflects a more careful, policy-driven approach. Rather than layering new requirements onto an already robust U.S. capital regime, the Federal Reserve is pursuing what Bowman has described as a '“sensible recalibration.'” The framework maintains capital levels above pre-2020 standards while refining how requirements are measured and applied to better reflect actual risk exposure."

The Bank Policy Institute, the American Bankers Association, the Financial Services Forum, the U.S. Chamber of Commerce, and the Consumer Bankers Association: Leading financial services trade associations appreciate the agencies' effort to calibrate the proposal across the broader capital framework and recommend further refinements to ensure the final rules fully account for any overlap.

• "We appreciate the agencies’ intent to calibrate the proposal considering the interplay with other aspects of the capital framework. As described in the proposal, the agencies considered the calibration of the entire capital framework, particularly the relationship between the proposed capital rules and stress testing framework, in assessing the impact of the proposal. However, the agencies’ calibration approach does not fully eliminate the overlap between certain aspects of the capital framework, which results in over-capitalization for operational, market, and credit valuation adjustment ('“CVA'”) risks. The agencies should make further revisions to properly calibrate all aspects of the capital framework."

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