US bank regulators to be grilled by Congress on capital hike plan

[November 14, 2023]  By Pete Schroeder and Michelle Price

WASHINGTON (Reuters) - The Federal Reserve's top Wall Street cop Michael Barr and other bank regulators will defend plans to hike U.S. bank capital requirements when they appear before Congress this week as they come under increasing pressure from many lawmakers to rein in their efforts.

Barr, the Federal Deposit Insurance Corporation's Martin Gruenberg and acting Comptroller of the Currency Mike Hsu will appear before the Senate Banking Committee on Tuesday at 10 a.m. ET (1500 GMT) and the House of Representatives Financial Services Committee on Wednesday at 9:30 a.m. ET (1430 GMT).

It will be the officials' first appearance on Capitol Hill since proposing the "Basel III Endgame" rules in July, and will offer insight into where the Democrat-led committee stands on the issue.

The proposal would overhaul how banks gauge risk and, in turn, how much capital they must hold against potential losses.

Regulators say stronger cash cushions will make the financial system safer and are especially crucial after three banks failed earlier this year. But lenders have attacked the proposal, saying it will hurt lending and the broader U.S. economy.

"Neither banks nor supervisors can anticipate all emerging risks. That is why it is also important to help ensure that our regulatory framework sets a strong baseline for resilience," Barr will tell lawmakers, according to prepared testimony posted by the Senate Banking Committee on Monday.

As part of their campaign to kill the Basel proposal, banks have been lobbying lawmakers to put pressure on the regulators. On Monday, 39 Senate Republicans stepped up the pressure, asking the regulators to scrap the proposal, citing economic harm.

Federal Reserve Board Vice Chair for Supervision, Michael Barr, testifies before a Senate Banking, Housing, and Urban Affairs Committee hearing in the wake of recent bank failures, on Capitol Hill in Washington, U.S., May 18, 2023. REUTERS/Evelyn Hockstein/

Analysts and lobbyists will be watching closely on Tuesday to ascertain where more moderate Democrats like Senators Mark Warner of Virginia and Jon Tester of Montana stand on the issue.

"The most important voices during this hearing will be centrist Democrats, as their tone and tenor will impact both the comments from industry and the Fed’s response to those comments in a final rulemaking," said Isaac Boltansky, director of policy research for brokerage BTIG.

Gruenberg may also be pressed on a Wall Street Journal report that said female employees had left the regulator due to its "toxic" culture and that misconduct was not punished.

Gruenberg told staff in an internal video Monday that the FDIC does not tolerate harassment, and has hired an external firm to review its practices, according to the agency.

Officials may also be queried about a ransomware attack on the U.S. arm of China’s biggest lender, the Industrial and Commercial Bank of China, which disrupted trades in the $26 trillion U.S. Treasury market on Thursday.

(Reporting by Michelle Price and Pete Schroeder; editing by Jonathan Oatis)

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