Fed Vice Chairman of Supervision Michael Barr said the complex “Basel III” proposal, which overhauls the way banks calculate the amount of capital they must hold against potential losses.
The head of regulation of the Federal Reserve defended a proposal to review the sector’s capital standards to the country’s largest banking lobby, arguing that The benefits of a larger cushion outweigh any additional costs that banks may face..
The Vice President of Supervision of the Fed, Michael Barrstated that the complex proposal “Basel III“, which overhauls the way banks calculate the amount of capital they must hold against possible losses, should have a “limited” impact on entities’ borrowing costssince it focuses mainly on other activities, such as negotiation.
The proposal applies the international capital standards agreed by the Basel Committee on Banking Supervision after the financial crisis of 2007-2009. Since its publication in July, Banks have lobbied hard against the plan, gaining allies in Congress and launching advertising campaigns.. These measures, they say, will hurt mortgage borrowers, to loans for ecological projects and to the economy in general.
Barr defends the plan in his speech, his first on banking regulation since the proposal was introduced. According to him he indicatesThe Fed and other banking regulators welcome industry feedback to help refine the plan, but insist on the benefits of higher capital for lenders.. “The private costs of capital must be weighed against the social benefits of greater capital in creating a healthier and more resilient financial system,” she says, according to prepared remarks.
Barr also disputes the industry’s claim that rising capital costs for banks will mean reduced lending and potential economic damage. According to him he indicatesbanks issued similar warnings when regulators imposed stricter rules in the wake of the financial crisisbut the American banking system has remained vibrant and the economy has grown.
Barr maintains that strong capital ensures lenders can weather downturns and any surprise risks. He has cited the bankruptcy of Silicon Valley Bank and two other US lenders this year as evidence that the system needs to be strengthened.
Fed Chairman Jerome Powell voted in favor of proposing the standards, but noted that he had questions and was eager to seek input. Although Powell has said he would defer to Barr as the Fed’s Wall Street regulatorindustry executives hope their concerns could lead to a less stringent proposal.
Source: Ambito
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