Consumer Financial Protection Bureau Director Rohit Chopra (left) and Federal Reserve Vice Chair for Supervision Michael Barr (right)
Bloomberg
WASHINGTON — Consumer Financial Protection Bureau Director Rohit Chopra said Wednesday that he favors finalizing the Basel III endgame bank capital proposal with revisions rather than re-proposing the rule and starting the rulemaking process again.
"I continue to believe that the United States needs to get a final rule implemented into place as quickly as possible," Chopra said in a press scrum following an appearance at the DC Fintech Week conference Wednesday morning. "It has very high stakes to make sure that the spirit of the Basel agreement is effectuated throughout the world, and we do not face the risk of bailouts and serious harms or a global financial crisis."
Federal Reserve Vice Chair for Supervision Michael Barr outlined what he described as "broad and material changes" to the joint bank capital proposal in a speech at the Brookings Institution last month.
Those changes would reduce the top-line capital raise burden on the largest banks from an estimated 19% in the initial proposal to roughly 9%, while also easing capital treatment of risks related to credit, trading and derivatives, tax credit equity financing, and operational risk. Importantly, Barr also said the agencies would re-propose the rule rather than finalizing the initial proposal with the changes he described in his speech.
While Barr suggested at that event that he had sufficient support for his outlined changes, the Federal Deposit Insurance Corp. board has not yet taken the matter up for a vote, reportedly because of opposition from Chopra — who, along with acting Comptroller of the Currency Michael Hsu, sits on the FDIC's five-member board of directors.
Chopra — who has not made public statements about his opposition to the proposal since it became public — made comments to Politico on Tuesday that were similar to his Wednesday remarks. He suggested that his interest in blocking the re-proposal is based more on concerns about the inherent delay in re-proposing the revised rule rather than in the substance of the compromises Barr has brokered to reach broader consensus among regulators.
The initial proposal — which was issued in July 2023 in the wake of a string of midsize bank failures — faced fierce opposition from banking trade groups. The Bank Policy Institute, a bank trade organization that represents the largest banks, retained former Labor Secretary and renowned administrative procedure attorney Eugene Scalia to represent its interests in any forthcoming legal challenge to the rule.
Under the Administrative Procedure Act, rules must first be proposed by federal agencies and published in the Federal Register, after which time the public may submit comments on the proposal for a defined period of time, usually 60 days. After that, the agencies are required to address — though not necessarily change the rule based on — all comments received.
Agencies may amend the final proposal based on those comments, but any adjustments must be a "logical outgrowth" of the original proposal. A final rule thus can be different from the initial proposal in its effects, but it cannot adopt an entirely new process or rationale that was not included in the initial proposal.
Experts have debated for over a year whether the Basel III endgame proposal could or should be finalized with changes, rather than being re-proposed.
Federal Reserve Chair Jerome Powell told members of Congress in March that he expected "broad and material" changes to be made to the final Basel rule, but he was uncommitted about whether that would entail re-proposal of the rule or finalizing the July 2023 proposal.
Fed Gov. Michelle Bowman — who did not support the initial proposal and has since been vocal in her misgivings about it — has advocated for a re-proposal of the rule, though she has said there are not "insurmountable obstacles" to achieving wide support on the Fed board for a rule revision.
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