House Republicans discourage new bank regulations

Chairman of the House Financial Services Committee Patrick McHenry, R-N.C., on Wednesday urged federal monetary policy officials to withdraw their Basel III Endgame proposal. McHenry and other members of Congress detailed their concerns in a Tuesday letter directed to the leaders of the Federal Reserve, the Federal Deposit Insurance Corporation, and the Federal Comptroller of the Currency.

Hold on, what is Basel III Endgame? It may sound like the title of a new video game, but the Congressional Research Service explained in a report published in November that Basel III Endgame is actually a collection of new bank regulations. They were proposed by the three federal agencies listed above. If installed, they would change the rules governing the amount of capital banks have to keep on-hand relative to their investments. The CRS explained that approach would require a significant departure from the ways that many banks currently do business.

So why would the government propose these regulations? The Basel III Endgame proposal, which the Federal Reserve included in a request for public comment, seeks to make banks with $100 billion or more in assets more stable, and more transparent. It comes after three banks that were larger than $100 billion collapsed last year because they didn’t retain enough capital on-hand to survive mass withdrawals from their account holders.

Why are Republicans opposing this? Republicans say more than 97 percent of the feedback Basel III Endgame has received during its public comment period—feedback from individuals who both are and are not field experts—has been critical. McHenry and others accused the regulative agencies of failing to clarify Endgame’s objectives, provide “rigorous quantitative analysis,” and ensure transparency about the rulemaking process.

Have the federal regulators responded to these accusations? Chairman McHenry and other members of the committee questioned Federal Reserve Chairman Jerome Powell in a hearing on Wednesday. Powell said that regulators understood the negative feedback leveled at the proposal, but have not yet had a chance to adapt the policy in response. He said he believed the final product would be one that enjoyed broad support.

Dig deeper: Listen to Nick Eicher and David Bahnsen’s “Monday Moneybeat” discussion on The World and Everything in It podcast examining the question of whether the United States has reached the end of its inflation cycle.