Republicans on the Senate Banking Committee are keeping a watchful eye on the Federal Reserve's ongoing review of bank capital requirements.
Sen. Tim Scott, R-S.C., the ranking member on the committee, sent a letter to Fed Chair Jerome Powell on Friday afternoon, urging him to make sure any changes to capital requirements are tailored to each bank's specific activities, risks and complexities.
Should the review fail to adequately tailor capital requirements, the letter warns, the Fed's actions could have a "chilling effect on market making activities and availability of financial services."
The letter also noted that the committee expected to be kept fully informed with "robust analysis" from the Fed as it conducted its review and adjusted policies accordingly. A Federal Reserve spokesperson said Friday afternoon that the central bank has "received the letter and [plans] to respond."
Sens. Mike Crapo, R-Idaho, Mike Rounds, R-S.D., Thom Tillis, R-N.C., John Kennedy, R-La., Bill Hagerty, R-Tenn., Cynthia Lummis, R-Wyo., Katie Britt, R-Ala., Kevin Cramer, R-N.D., and Steve Daines, R-Mont., co-signed the letter.
The senators also argued that the banking sector's ability to withstand the shock of the COVID-19 pandemic and ensuing liquidity crunch in spring of 2020 without widespread failures serves as evidence that they are already sufficiently capitalized.
The missive is in response to the
Among the policies to be considered are the Fed's supplementary leverage ratio, the stress capital buffer — and the stress testing regime that determines it — and the final implementation of capital requirements related to Basel III, known as the Basel III endgame.
Barr, who has made the holistic capital review his first signature act as the Fed's top regulatory official, has not taken an official stance on whether capital requirements should be higher or lower. However, in a December speech at the American Enterprise Institute, Barr stated that "current U.S. requirements are toward the low end of the range described in most of the research literature."
In their letter, the Senate Banking Republicans pointed to the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act's provisions on tailoring requirements. The law narrowed portions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which established new principles for bank regulation in the wake of the subprime mortgage collapse in 2008.
"As the Vice Chair of Supervision, Mr. Barr should adhere to the letter and spirit of the tailoring provisions as enacted by Congress," the senators wrote. "Reports of regulators' efforts to unwind those tailoring reforms are concerning and do not comply with the law."
