The nation's top bank supervisors defended their involvement in
Top staffers from the Federal Reserve Board, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency testified in front of the House Financial Services Committee on Thursday about their participation in the
OCC Senior Deputy Comptroller for Bank Supervision Grovetta Gardineer said these collaborations help ensure the U.S. banking system is not undercut by less scrupulous supervisory jurisdictions.
"It gives us an opportunity … to talk about raising standards, higher standards, and trying to ensure that there is a level playing field so that the U.S. financial system is not at a competitive disadvantage, or losing market share to a more lax jurisdiction that has lower standards or is you know leading a race to the bottom," Gardineer said.
Fed Director of Supervision and Regulation Michael Gibson added that the collaborative approach makes it easier for U.S. banks to set up operations in other countries.
"Having common standards helps the global financial system, because U.S. firms that want to operate abroad have rules that they're familiar with, because we have a somewhat harmonized [framework]," he said.
During the hearing, Republicans and Democrats alike probed the ways in which international accords shaped domestic regulatory policy. A particular focus was the so-called
Gibson, who fielded the bulk of the questions during the two-and-a-half-hour hearing, said U.S. regulators are not strictly bound to any of the standards agreed upon with other jurisdictions. He added international standards are not always implemented in their entirety.
"Nothing that's agreed in Basel or developed there is binding," he said. "We make our decisions based on our domestic statutory mandates."
Several committee members criticized the regulators for being dragged along by their global counterparts on certain regulatory issues, particularly with respect to climate-related policies. Rep. French Hill, R-Ark., accused regulators of being "subsumed by European ideas."
Some Democrats were also concerned that agencies were tying their policies too closely to those of their European peers.
"I'm wondering, where did we get this notion that the United States, as the financial superpower of the world, must conform to European standards of banking?" said Rep. Ritchie Torres, D-N.Y. "As a U.S. policymaker, the most important question for me is not whether the U.S. banking system is acting in conformity with Europe's banking system. The most important question is whether the U.S. banking system is achieving the best possible balance between economic growth and financial stability."
Others expressed concern that, despite the international standards set by the Basel Committee and other groups, many U.S. regulations go
"It seems odd that those who oppose this improvement in our regulations are enlisting xenophobia, when in fact, what you folks are doing goes far beyond the European standards," said Rep. Brad Sherman, D-Calif. "What concerns me here is that we're going to make some mistakes in how we adopt these regulations, and I don't think we should blame the Europeans for that."
Gibson defended this so-called "
"I would say that the fact that we've had strong regulatory standards in the U.S. has been a source of strength for our banking system and our economy," he said. "I can't point to a particular bank that didn't fail because we did this … but overall, I think we have a strong system."
GSIB surcharge controversy
Rep. Patrick McHenry, R-N.C., the chair of the committee, and several other committee members also pressed Gibson about his role in the adoption of a new standard by the Basel Committee in 2022 that resulted in lower capital buffers for Europe's biggest banks.
The change resulted in the European Union being treated as a single jurisdiction in the calculation of the global systemically important bank, or GSIB, surcharge. The change led to banks in Europe having their cross-border asset volumes revised down, resulting in lower capital buffer requirements. Unlike most changes adopted by the committee, the new treatment was adopted without gathering public commentary.
Gibson testified that he did not recall whether public commentary had been solicited for the change. He added that such decisions are decided on by "consensus" rather than a vote of participants.
"In the Basel Committee, there's no binding agreements possible, so there's no votes," he said. "And there's really no other way the Basel Committee can have those discussions other than operating by consensus."
Still, Gibson acknowledged that because of its position as the world's largest economy, the U.S.'s stance on potential policy changes tends to carry more weight on the committee than other members.
Gibson also testified that when changes to standards are discussed by the committee, he typically briefs the vice chair for supervision on the issue. But, the GSIB surcharge change in question took place after former Fed Gov. Randal Quarles left the board, but before current Fed Vice Chair for Supervision Michael Barr was confirmed to the post.
McHenry said the way U.S. regulators engage in international agreements lacks transparency. He argued that the approach should be more akin to international trade negotiations, in which U.S. representatives must provide detailed reports to the public on their actions and objectives.
"This is what I want to highlight, this one example with the Fed lowering European bank capital standards and, in the same breath, in the same committee internationally, raising U.S. capital standards in the next set of meetings," McHenry said. "And yet, we have no justification for this, nor the relative opinion of the Federal Reserve."
