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In July 2023,
Unfortunately, megabanks and their allies have responded to the Basel III endgame proposal by threatening to sue the banking agencies if they adopt a final rule. Most notably, the Bank Policy Institute has
The banks' legal arguments against Basel III endgame are wholly without merit. Indeed, the federal banking agencies provided ample support for the Basel III endgame proposal in a detailed,
The banks' legal claims are especially galling because the Basel III endgame proposal contains more evidentiary support than many of the Trump-era deregulatory rules adopted just a few years ago with the banking sector's full-throated support. For example, the Federal Reserve's 2019
Despite the baselessness of their claims, the banks' legal saber-rattling about Basel III endgame
The fact that supporters of strong bank capital rules have, to date, not countered with their own legal strategy has tilted the playing field in favor of the banking sector's efforts to defeat Basel III endgame. For Wall Street reform advocates, developing and implementing a legal strategy is of urgent importance to encourage the banking agencies to adopt a strong Basel III endgame final rule and provide the agencies with legal "cover" to combat the banking sector's baseless claims.
A public-interest litigation strategy supporting Basel III endgame could include a two-prong approach.
First, supporters of strong bank capital rules could prepare a lawsuit alleging that the federal banking agencies did not go far enough in finalizing the Basel III endgame rule. In other words, Wall Street reformers could argue that a weakened final rule arbitrarily and capriciously sets capital requirements for the largest banks too low. This claim would mirror the Sierra Club's and National Resource Defense Counsel's lawsuit against the Securities and Exchange Commission's climate disclosure rule, in which the plaintiffs alleged that the SEC unjustifiably limited the information public companies are required to report.
Sen. Elizabeth Warren, D-Mass., an influential progressive member of the Senate Banking Committee, decried reported meetings between Federal Reserve Chairman Jerome Powell and large bank CEOs who want the Basel III endgame proposal weakened.
Alternatively, or in addition, public-interest advocates could file a lawsuit seeking to overturn Trump administration deregulatory rules that contained meager analytical support. Targets of this lawsuit could include the
The litigation strategies outlined above could accomplish at least three important objectives.
First, to the extent that public-interest advocates publicize their litigation strategy in advance, their preparations may increase pressure on the banking agencies to adopt a strong final rule and thereby help offset the influence of the banking sector's baseless litigation strategy.
Second, as the Sierra Club's and NRDC's lawsuit against the SEC's climate disclosure rule demonstrated, a public-interest litigation strategy
Third, a challenge to the Trump-era rules would help hold a conservative court accountable. If such a court were to overturn Basel III endgame, it would have to throw out many Trump-era rules to maintain consistency.
To be sure, implementing a pro-endgame legal strategy will not be easy. Supporters of strong capital requirements may have to find a willing industry plaintiff — such as a smaller bank or credit union that competes with the megabanks — to establish legal standing. And with public interest groups currently stretched thin fighting other urgent legal battles, funding for a pro-endgame litigation strategy may be difficult to come by.
Despite these potential challenges, Wall Street reformers ought to marshal their resources to implement a pro-capital litigation strategy. The banking sector has targeted Basel III endgame with a well-funded, yet baseless legal campaign that appears to have influenced the banking agencies to water down their proposal. To salvage a strong Basel III endgame rule, supporters of strong capital requirements must step up with a litigation strategy of their own.