WASHINGTON — Consumer Financial Protection Bureau Director Rohit Chopra has signaled that he will vote against a weakened version of the Basel III endgame proposal, according to three sources familiar with the matter.
The
The impasse is the latest development in a long drama around the controversial Basel III endgame proposal. The original plan, proposed in 2023, was
"The revised bank capital standards are a Wall Street giveaway, increasing the risk of a future financial crisis and keeping taxpayers on the hook for bailouts," said Sen. Elizabeth Warren, D-Mass. "After years of needless delay, rather than bolster the security of the financial system, the Fed caved to the lobbying of big bank executives."
The Federal Reserve was meant to meet on the so-called "supplemental proposal" to the original Basel III endgame proposal at 3 p.m. on Friday, the sources said. The Federal Deposit Insurance Corp. was supposed to meet in a closed session on the proposal earlier in the day on Friday, although that time has been repurposed, one of the sources said.
Chopra is able to hold up the proposal in his position on the FDIC board, a five-person body including the FDIC chair, head of the OCC and two members of the minority party, alongside Chopra as the head of the CFPB.
Michael Hsu, the acting Comptroller of the Currency, and Martin Gruenberg, the FDIC chairman, have signed on to
Chopra's break from Gruenberg and Hsu puts the count at two in favor of the proposed changes, to three nays.
The Basel III endgame is the U.S. implementation of an international accord
Barr outlined changes to the proposal in a speech last week that would impact risk weight calculations related to credit, market, operations and derivatives, among other adjustments.
The supplemental proposal would address many of the concerns raised about the initial proposal, but bankers and their trade groups
One issue not addressed in Barr's speech was the overlap between the fundamental review of the trading book, or FRTB — which is used to calculate a bank's market-based risks — and the market shock scenario in the Fed's annual stress test. Bankers argue that they are effectively charged twice for the same risks.
The FRTB standards are set by the Basel Committee as a common framework to prevent regulatory arbitrage, by which banks could choose to concentrate their trading activity in less stringent jurisdictions. The stress testing regime, meanwhile, is specific to the U.S.
In the wake of Barr's proposal, some executives questioned why they should be required to hold more capital at all, given how the nation's biggest banks performed through the COVID-19 pandemic as well as the banking stress of last spring.
Earlier this month, the Bank of England
Those familiar with the rule say the supplemental proposal could be capital neutral if the changes to the global systemically important bank, or GSIB, capital surcharge were made retroactive. Currently, the charge is calculated based on a bank's total footprint but does not account for broader economic growth, meaning institutions receive higher assessments even when their share of market activity remains steady. The proposal would address this by adding a deflator for inflation and broader economic growth into the calculation. Were this change made retroactive — effectively acknowledging that banks were overcharged — the resulting lower capital requirements could offset increases elsewhere in the proposal.
Earlier this week, Fed Chair Jerome Powell said the supplemental proposal
The Fed could move to issue the supplemental proposal, but Powell said his preference is for the three regulators to act jointly.
"The idea is that we're all moving together, not we're not moving separately," he said.
The Fed and the CFPB declined to comment.
The OCC, in a statement from Hsu, said that the changes outlined by Barr "reflect the work the three agencies undertook together," referring to the Fed, OCC and FDIC.
"To ensure that the capital requirements for the nation's largest banks are modernized and strengthened, I am committed to working with my peers on next steps to drive the Basel 3 endgame to closure," Hsu said in the statement.
The FDIC directed American Banker to Gruenberg's statement made after Barr outlined his proposed changes, otherwise declined to comment.
"The Federal Reserve, OCC, and the FDIC have worked cooperatively on the Basel III proposal, including the changes outlined in Vice Chairman Barr's remarks," Gruenberg said at the time. "I look forward to the agencies working together to bring Basel III to a conclusion that will strengthen bank capital and bolster financial system resilience and stability."
Kate Berry contributed to this report.
