August 18, 2022

Lawmakers Seek Assurances on Bank Regulations

Harmonization has been a top consideration in international talks related to how much capital the biggest banks must maintain and methods for orderly wind-downs of large firms, several officials told the House Financial Services Committee on Thursday at a hearing in Washington.

Representative Spencer Bachus, the Alabama Republican who leads the Financial Services Committee, conducted the hearing amid complaints from bankers that American regulations being imposed under the Dodd-Frank act might slow economic recovery from the 2008 financial crisis and drive business overseas. Lawmakers sought assurances that regulators were looking out for United States interests in dealing with their international counterparts.

“Dodd-Frank was not passed in the E.U., and it was not passed in the G-20, so our regulators must take great care,” Representative Jeb Hensarling, the Texas Republican who serves as financial services vice chairman, said referring to the European Union and the Group of 20 nations.

The six regulators who appeared before the panel agreed that they planned to ensure a level playing field in rules, including those for the $601 trillion global swaps market.

“The best national regime in the world is not going to be adequate if other countries do not adopt robust resolution tool kits and complementary authorities,” said Lael Brainard, the Treasury under secretary for international affairs.

She was joined at the hearing by Daniel K. Tarullo, a Federal Reserve governor; Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation; Mary L. Schapiro, the chairwoman of the Securities and Exchange Commission; Gary Gensler, chairman of the Commodity Futures Trading Commission; and John Walsh, acting comptroller of the currency.

The international Basel Committee on Banking Supervision agreed last year to raise the minimum common equity requirement for banks to 4.5 percent from 2 percent, with an added buffer of 2.5 percent, for a total of 7 percent of assets weighted for risk.

The Basel members are also proposing that so-called global systemically important financial institutions hold additional capital.

“What is important is not to lose sight of the costs of not acting,” Mr. Tarullo said at the hearing. The surcharge based on some studies may be as high as seven percentage points above the Basel requirement, he said, adding that the final figure, now under consideration by regulators, may not reach that level.

American regulators have yet to align themselves on the issue, with Ms. Bair pushing higher capital levels for the largest banks and Mr. Walsh, who oversees national banks, urging caution as talks over rules continue.

“I’m concerned with how much further we can turn up the dial without negative effects on lending capacity,” Mr. Walsh told lawmakers. “A very real risk is that lending will fall, will become more expensive and will again move from the regulated banking sector into the less-regulated shadow banking sector.”

The committee also heard testimony from a second panel including executives at JPMorgan Chase and Morgan Stanley as well as an associate general counsel at the A.F.L.-C.I.O.

The banking officials argued that certain derivative rules will push business outside of the United States.

Representative Barney Frank of Massachusetts, the senior Democrat on the Financial Services panel, told regulators they should not let concerns over bank profits affect their decisions.

“They are the means to a sound financial system, they are not the end,” said Mr. Frank, who co-sponsored the financial regulation law that bears his name. “Their profitability in and of itself is not important to anyone other than themselves.”

Article source: http://feeds.nytimes.com/click.phdo?i=f467e7e7345f3641a25410d93d543553

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