U.S. regulators announce Basel III Plan

U.S. regulators announce Basel III Plan

July 31, 2023, Global Banking Regulation Review

Global Banking Regulation Review featured Randy Benjenk's comments in an article about U.S. federal regulators newly-announced plans for implementing the final components of Basel III - – going beyond its requirements with a ban on internal models for credit and operational risk, increasing the amount of capital banks need to hold, and expanding the framework to all banks with $100 billion or more in total assets.

Speaking to Global Banking Regulation Review, Randy notes the proposal would significantly raise capital requirements for the banks affected by it, and that most banks would need to raise capital as a result. “Higher capital requirements have real world effects in the economy,” he adds. “The agencies seek to justify these costs by invoking the general importance to the economy of a safe and sound banking system, but there are unanswered questions about how much is too much.”

“Complex capital rules, originally designed to apply to a small number of very large, internationally active banks, are now being pushed down to mid-sized institutions, which may be a result of the bank failures earlier this year,” Randy also stated. “The proposal’s broad application to any bank with $100 billion or more in assets could disincentivise smaller banks to grow beyond that point, which is in tension with the Biden administration’s goal of fostering competition.”

He added that the rule “appears particularly punitive” for banks that do trading. “Risk may migrate out of the banking system, where it has been supervised carefully, to less regulated parts of the economy.”