(Bloomberg) -- All three of the top US bank regulators need to get on the same page when they propose major revisions to the Biden administration’s signature overhaul of capital requirements — or risk causing confusion, a top FDIC official said Wednesday.
“For just one agency to re-propose – but with an expectation that a future final rule will be issued jointly by the three agencies – would be unprecedented, sow confusion and lead to a number of practical and legal questions,” Federal Deposit Insurance Corp. Vice Chairman Travis Hill said Wednesday.
In remarks prepared for a speech at the Washington-based American Enterprise Institute, Hill said he’s skeptical about re-proposing only parts of the plan. He’s also concerned about changes in capital requirements that might affect midsize banks tied to market risks, “in which a bank might ricochet back and forth from one standardized framework to the other.”
Basel Debate
Hill was commenting on efforts to redo the US version of Basel III, an international accord intended to prevent future bank failures and another financial crisis. Supporters of the US version have also billed it as a fix for some of the flaws that led to the collapse of Silicon Valley Bank and Signature Bank last year. Critics say it could raise the costs of lending, crimp the economy and put US banks on weaker footing against international rivals.
It’s the latest shot in an ongoing salvo among Washington regulators as they push lenders to meet higher capital requirements. The initial version a year ago was met by fierce lobbying campaigns, and regulators have said they’re open to walking back some of the measures.
Federal Reserve Chair Jerome Powell signaled earlier this year that the proposal was in for “broad and material changes.” Fed Vice Chair for Supervision Michael Barr, the architect of the original capital plan, later agreed.
Earlier this month, Powell told lawmakers that while the three regulatory agencies were close to agreeing to change parts of their plan, the Fed might “put a revised proposal out for comment,” without specifying which parts.
Bloomberg reported that the revisions would walk back key parts of the landmark proposal — including one that might have had a large effect on big banks with sizable trading businesses, among others.
At the time, Powell acknowledged there was not yet consensus on the changes or whether to re-propose among all the voting members at the FDIC and Office of the Comptroller of the Currency, the third agency involved.
FDIC Succession
Hill, a Republican and second in command at the FDIC, is a possible contender to run the agency if the Senate does not confirm Christy Goldsmith Romero and Democrats lose the White House. The agency has been labeled a toxic workplace following allegations of sexual harassment and discrimination, and the FDIC chair, Martin Gruenberg, has said he will step down once the Senate confirmed a successor.
Hill said he favored a re-proposal of the whole plan, rather than re-proposing only portions. Doing it piecemeal might not work because “everything in the framework is related” — a change in one part might have knock-on effects elsewhere, he said.
Bolstering banks’ liquidity backstops became a priority for US regulators after last year’s wave of failures. One idea includes requiring banks to tap the Fed’s discount window at least once a year to reduce the stigma and ensure lenders are ready for troubled times, Bloomberg reported in January.
Hill said the concept is worth considering, but it could require banks to maintain a minimum ratio of cash plus discount window borrowing capacity against uninsured deposits.
“Setting this type of hardwired ratio seems dangerous,” Hill said.
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