A catchphrase you’ll likely hear throughout today’s Senate Banking Committee hearing is “Basel III” or “Basel III endgame.” But what exactly is that?
Basel III endgame is the title of a package of new banking regulations that could go into effect in the coming years. It was recently greenlighted by the Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
However, the proposal — which, among other things, would increase the level of capital that banks with at least $100 billion in assets would be required to hold — has been met with significant backlash from lawmakers on both sides of the aisle as well as bank CEOs.
US banks deemed systemically important globally — or, colloquially, “too big to fail” — would have to set aside an additional 19% of capital on average, according to the proposal. Banks with more than $250 billion in assets that aren’t considered systemically important would see a 10% increase in the capital they’re required to hold.
If banks have to set aside more capital, that means they have fewer funds to lend out to businesses and consumers. And bank CEOs argue it would force them to charge higher interest rates on loans.
But many top financial regulators argue that having a bigger capital cushion would strengthen banks’ ability during periods of financial stress where they could be more vulnerable. That, many feel, would lessen the risk that taxpayer funds would be needed to bail out banks, as was the case in the wake of the Great Recession.
Importantly, Basel III endgame has not been finalized and the standard notice-and-comment rule-making process was recently extended to January 16, 2024 from November 30.