Senator Elizabeth Warren, a Democrat from Massachusetts, questions Lael Brainard, governor of the U.S. Federal Reserve, not pictured, during a Senate Banking, Housing, and Urban Affairs Committee confirmation hearing in Washington, D.C., on Thursday, Jan. 13, 2022.
Al Drago | Bloomberg | Getty Images
WASHINGTON — Senate Democrats are pressing federal banking regulators to toughen bank capital requirements following back-to-back congressional hearings where officials testified concerning the failures of Silicon Valley Bank and Signature Bank.
Sen. Elizabeth Warren, D-Mass., a member of the Senate Committee on Banking, Housing and Urban Affairs, is leading the calls to strengthen capital rules for banks by aligning with the international “Basel III” framework.
“We write to induce you follow through with establishing strong capital requirements that protect consumers and taxpayers, and preserve the security and soundness of our banking system,” Warren, together with Sens. Richard Blumenthal, D-Conn., and Tammy Duckworth, D-Ailing., wrote in a letter dated Wednesday.
The letter was sent to Federal Reserve Vice Chair for Supervision Michael Barr, Federal Deposit Insurance Corporation Chairman Martin Gruenberg and acting Comptroller of the Currency Michael Hsu. Barr, who’s leading a comprehensive review of the SVB failure, and Gruenberg each testified at hearings before Senate and House lawmakers this week.
Within the letter, the lawmakers blamed lobbyists and a few Republicans for efforts in the course of the Trump administration to ease capital requirements established after the 2008 financial crisis. Additionally they said GOP lawmakers were pushing regulators “to stave off stronger capital standards in the times before the bank failures.”
Ten Republican lawmakers on the Senate Banking Committee called Barr’s suggestion to extend capital requirements “unfounded” in a March 3 letter to Fed Chair Jerome Powell. SVB collapsed several days after they sent the letter.
The lawmakers also warned against what they called “industry spin” that blames the bank collapses on the oversight of regulatory agencies moderately than lax banking regulations.
“These industry officials are right that bank regulators’ failures are a key a part of the explanation that Signature and SVB failed – but this doesn’t obviate the necessity for strong capital requirements,” they wrote.
The senators also pointed to the Fed’s March 2020 decision to simplify capital rules for giant banks as evidence of a drawdown of regulations. Under the “stress capital buffer” implemented on the time, the capital requirements for banking firms is decided annually based on supervisory stress tests.
Warren, Blumenthal and Duckworth are pushing for regulators to completely implement Basel III, a set of international regulatory standards for banks that will increase each the quantity and quality of capital held by U.S. banking organizations. The Fed has also proposed rules to standardize minimum liquidity requirements for giant and internationally lively banking firms under Basel III.
Federal regulators recommitted to implementing the standards in September.
The lawmakers urged regulators to implement strong capital requirements to fend off aggressive lobbying from Wall Street and safeguard against more bank failures.
“The failures of SVB and Signature, and the regulatory and supervisory failures that enabled its costly collapse, are directly tied to the massive banks’ and Republican policymakers’ cynical efforts to weaken our regulatory framework,” the lawmakers wrote. “With a purpose to prevent future bank crises and protect working Americans, I urge your agencies to quickly implement strong capital requirements and resist industry pressure to weaken or delay these requirements.”
