Bank collapses last year spurred panic over potential failures and bank runs that could topple our already fragile economy. With record-high inflation and a president unwilling to curtail his spending, it’s reasonable to look for a safety net to protect Americans. However, the proposal from the Federal Reserve, FDIC and Office of the Comptroller of the Currency (OCC) places the burden of providing financial cushion on banks, businesses and individuals.
The Basel III Endgame proposal, as it’s known, suggests hitting U.S. banks with higher capital requirements, often beyond what their internal risk management strategies deem necessary. For some of the more well-known banks, this would lock up an additional 20% of their cash.
Not only does Basel III punish an entire industry for the mismanagement of a few banks, but these requirements pose significant challenges for small businesses and individuals.
Forcing banks to sock away more money chokes their lending capabilities, meaning people who need loans will have a tougher time getting them. Those who can get loans will see higher interest rates — yes, even higher. Decreasing access to and raising the cost of capital sets back basic pieces of the American Dream, from buying a home to starting and maintaining a business.
Consumers will likely turn to alternative forms of funding with less regulatory oversight and often zero capital requirements, defeating the purpose of the rule changes.
Simply put, Basel III is an overreaction to the issue of bank failures. Throughout the COVID pandemic, governments shut down economies around the world, and banks managed to weather the storm. Poorly managed banks may create isolated crises, but Basel III would throw out carefully constructed bipartisan efforts to address these circumstances.
Last summer, Sens. Scott Brown and Tim Scott (R-SC) announced plans for the Senate Banking Committee to hold its first markup hearing in almost four years to bolster bank executive accountability. Sen. Scott also worked with Sen. Sherrod Brown (D-OH) to introduce the Recovering Executive Compensation Obtained from Unaccountable Practices (RECOUP) Act. This bill holds bank executives financially responsible for failures.
Additionally, I’ve offered legislation guaranteeing noninterest-bearing transaction accounts in the case of a systemic risk exception. This would work to prevent or mitigate bank runs in situations that threaten our financial stability.
I’ve also introduced a bill making the Federal Reserve’s Bank Term Lending Program (BTFP) facility permanent. BTFP is an emergency lending program designed to provide banks and other lenders with liquidity, providing for a financial cushion, when necessary, without cutting off access to capital for businesses and individuals year-round.
I fear the architects of Basel III understand the destructive implications of their proposal and aim to claim greater power and control over the United States banking system. We have the largest and most successful financial system in the world, yet proponents of Basel III Endgame would send us into the same economic disarray we see in Europe. Our banks don’t need their standards.
