Halting Pro-Cyclical Policy Measures and Increases in Regulatory Capital

In the wake of the U.S. banking turmoil of March 2023, federal bank regulators are considering an increase to capital requirements for the nation's largest banks —those with $100 billion or more in assets—by as much as 20%. This could significantly affect liquidity for commercial real estate transactions, impact asset values, and influence economic growth. The proposed changes to large bank capital requirements would implement the final components of international banking regulations known as the “Basel III endgame.”

Position

The Roundtable urges federal regulators and other policymakers to avoid any pro-cyclical policies, such as requiring financial institutions to increase capital and liquidity levels to reflect current mark to market models.. Raising capital levels at the largest U.S. banks will limit credit and put additional pressure on the financial system.  

The largest U.S. banks’ capital and liquidity levels have grown dramatically since implementing the original Basel III standards in 2013 in response to the 2008 Global Financial Crisis. Today, the U.S. banking system is sound and resilient, with strong capital and liquidity.

The imposition of a punitive capital charge is unwarranted, and regulators have failed to provide justification for such an increase.

 

Background

The Fed, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) jointly approved the proposal—subject to public comment before a final vote —in July 2023. 

Some Fed Governors, however, dissented from the proposed rulemaking, and Fed Chairman Jerome Powell signaled a cautious approach to consideration of any final rule as a public comment period continues.

For more information and recent updates, reference our resources below.

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