Republicans double-down on request to Fed for Basel III economic analysis

Zach Gibson/Bloomberg

House Financial Services Committee Republicans continued to press the Federal Reserve for data related to its Basel III endgame proposal, part of lawmakers' attempts to undermine the central bank as it pursues the rulemaking that would raise capital requirements for large banks. 

In a hearing Tuesday, Rep. Andy Barr, R-Ky., chairman of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy, repeated calls for the Fed, along with the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, to release a cost-benefit analysis related to the Basel III endgame proposal. Barr said that the regulators have not properly considered how the proposal would impact financial markets and the economy. 

"That requires analysis, which the federal banking regulators in their hurriedness have not done," Barr said. "Will liquidity in Treasury markets dry up because of the tangled web of proposals? Will first-time homebuyers be shut out of the dream of homeownership? Will the car and truck buyers find they can no longer afford personal transportation because auto credit is too costly for most and not available for many?"

The most recent hearing follows a similar one by the same subcommittee, in which Republicans started to build a case for a potential legal challenge to the Basel III proposal from U.S. banking regulators. Last week, banking trade groups sent a letter to regulators, accusing the agencies of using nonpublic data for the proposal, which they said violates the standards of the Administrative Procedure Act. 

Barr, at the most recent hearing, continued to make claims about the validity of the rulemaking considering the Administrative Procedure Act, which could further set up Republicans to challenge the rule, especially should the party gain control of both chambers in the 2024 elections. 

"Neither Congress, nor the industry being regulated, nor the American people, including consumers, families, small businesses, farmers and ranchers, and municipalities, know what to expect from the incredibly complex, interconnected, and hazy web of what has been proposed," Barr said. "The risks of working hastily without analytical support are high and systemic. The process of rolling out the under-analyzed Basel-related capital proposal shows clear violations of the Administrative Procedures Act, thereby running counter to the law." 

Rep. Bill Foster, D-Ill., ranking member of the subcommittee, joined Barr in a letter to regulators originally requesting the data around the Basel III endgame proposal. 

"I believe that having access to the data and assumptions and methodology would allow for a more informed discussion across the board here," Foster said. "But I think we also have to recognize that bank capital requirements and regulation is never going to be an exact science. You can reasonably model the costs of any increase or decrease in bank capital requirements or other things, the costs of compliance of increased stress testing, and so on." 

Foster has consistently struck a softer tone than Barr in criticizing the Fed for the Basel III endgame proposal, and swayed during the most recent hearing into defending the Biden administration bank regulators. 

"The long list of objections we just heard, those could have been lifted almost verbatim from all the objections to the increased capital requirements that were part of Dodd Frank," Foster said. "[Republicans] were talking about how this would certainly drive the banking offshore and disadvantage U.S. banks and cause them to be non profitable. In fact, kind of the reverse has happened. It's been a very good decade for U.S. banks, especially the largest ones."