Basel III Endgame


What It Is

The federal banking agencies (The Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency), issued a proposal that would implement the final components of the Basel III agreement in the United States, known as the Basel III endgame. This proposal would make significant changes to bank capital rules, forcing the largest American banks, to increase their capital ratios to their highest levels in recent history.

Why It Matters

Even though the US banking system is, in the words of a joint statement issued by Treasury Secretary Yellen, FDIC Chairman Gruenberg and Federal Reserve Board Chair Powell in March 2023, “resilient and on a solid foundation,” regulators are nevertheless forcing banks to hold more capital against their loans. According to the Federal Reserve, the proposal would result in “an aggregate 16% increase in common equity tier 1 capital requirements” for affected banks. The effect of this will result in reduced access to credit for consumers. Among those most harmed are financially vulnerable consumers who will likely be pushed out of the safe, well-regulated banking industry and forced to seek unregulated alternatives in the “shadow banking” sector.

What We Believe

Requiring banks to hold more capital than necessary hurts all consumers, especially low- and moderate-income consumers who may be priced out of loans and other bank products.
The Agencies’ conclusion that increased capital requirements will make the U.S. financial system more resilient is not empirically supported, and the Agencies failed to adequately consider the potential for substantial harm to the real economy.
The proposal’s many inconsistencies with both the Basel Framework and Basel III endgame proposals in other jurisdictions, including disallowing the use of internal models, would harm, rather than improve, international capital discrepancies, and undermine the Basel Committee’s objective of enhanced comparability.


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