To the editor,
In a recent BankThink ("Debunking the myths about the Basel III endgame regulation," Jan. 18, 2024), the author is absolutely correct that the conversation about the possible increase in capital requirements must be based on facts. But from the very first sentence, the piece is filled with inaccuracies.
First, just a handful of countries have implemented the agreement struck in Basel, Switzerland, in 2017. Like the United States, most of the jurisdictions around the world are at various stages of creating their rules. Thus far, the United States is proposing to increase capital to a much larger degree for its global systemically important banks (GSIBs) than other jurisdictions. The U.K. is proposing a 3.2% increase for its GSIBs versus a 5.6% increase for the EU and an estimated 30% for U.S. GSIBs. The U.S. proposal's many inconsistencies with the international Basel agreement and Basel III endgame proposals in other jurisdictions would worsen, rather than improve, already substantial international discrepancies in capital requirements. Such divergences would harm the American economy and the ability of U.S. companies to compete internationally. So much for the stated goal of harmonizing international capital rules.
Second, the implementation of the Basel III endgame for the largest U.S. banks has absolutely nothing to do with the regional banking turmoil last year. To the contrary, because of their strong capital positions, the largest U.S. banks were called upon by the government to step in and support the financial sector in March, putting billions of dollars of unsecured deposits into First Republic Bank to squelch contagion and give the Federal Deposit Insurance Corp. time to wind down the ailing institution.
Federal Reserve Chair Powell has said repeatedly that the nation's largest banks are "very strong" and a "source of strength." The largest U.S. banks have supported small and large businesses, households and communities, and helped to ensure smooth functioning financial markets during significant economic headwinds, such as the COVID-19 pandemic. In the past 15 years, U.S. GSIBs have more than tripled their common equity tier 1 capital to more than $900 billion. The largest U.S. banks also are subject to annual supervisory stress testing and have maintained capital well in excess of hypothetical losses estimated by those stress tests. These tests assume no emergency government support during an economic downturn.
Finally, contrary to the author's statements, the largest U.S. banks and their more than 735,000 employees are essential to the strength and the competitiveness of the U.S. economy, supporting countless American households, businesses and governments every day, including those in historically underserved communities. In just one example, Forum members have invested more than $9.2 billion in Community Development Financial Institutions and committed more than $525 million to minority depository institutions since the beginning of 2020.
The comment letters in response to the proposal are still coming in, but organizations across the country — including the NAACP, small businesses, manufacturers, local lawmakers and others — have raised concerns with the Basel endgame proposal, including its potential impact on people in historically underserved communities.
The financial crisis was 15 years ago. The nation's largest banks are strong and they are essential to our economy. Higher capital requirements would do more harm than good. And that's a fact.
