Hearing Entitled: Right-Sizing the U.S. Bank Capital Framework
House Financial Services Subcommittee on Monetary Policy and Trade
2025-12-11
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Source: Congress.gov
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The Subcommittee on Financial Institutions will come to order. Without objection, the chair is authorized to declare a recess of the committee at any time. Today's hearing is titled Right-Sizing the U.S. Bank Capital Framework, a Return to Tailoring Economic Growth and Competitiveness. Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. I now recognize myself for four minutes for an opening statement. Today, this subcommittee turns its attention to an issue that sits at the heart of American economic strength, our bank capital framework. For years, Washington has layered rule upon rule on American banks, forcing them to retain capital at levels that far exceeds standards applicable to our global competitors. And the results have been detrimental to U.S. firms. We have a capital system that increasingly gold-plates international requirements, imposes one-size-fits-all mandates on institutions with different risk and business profiles, and undermines the competitiveness of American institutions. Let me be clear. Republicans on this committee support a tailored, common sense capital framework that protects the safety and soundness of the American financial system. But what we do not support is a regulatory framework that needlessly restricts credit, penalizes growth, and places American banks at a disadvantage against foreign competitors who are held to lesser standards. The Basel III endgame framework should not be solely focused on international harmonization. It should be focused on economic growth as well. Capital should be right-sized to protect the economy, not inflated for ideological reasons, not used as a tool to achieve political objectives, and not calibrated without regard to the real-world impacts on lending, liquidity, and the economic vitality of local community institutions.
This is why the Biden administration's initial Basel III endgame proposal was deeply flawed and received bipartisan criticism. It threatened to elevate capital burdens so far above international norms that entire categories of banking business lines, from residential mortgages to market making, could have migrated to offshore institutions. Fortunately, The bipartisan message was clear. The Basel III endgame must be re-proposed, and that re-proposal is not just an opportunity, but a responsibility to get this right. We need a framework that is proportional, tailored, and grounded in empirical analysis. We need a framework that recognizes the diversity of the American banking system. We must build upon the bipartisan S2155 to ensure capital requirements are tailored based on a bank's size, complexity, and risk profile. Indeed, a regional bank focused on traditional lending should not be subject to the same standards intended for institutions engaged in significant trading, cross-border activities, or complex market operations. We must account for growth in the economy by indexing regulatory and category thresholds This way, banks do not stifle their growth when it is needed most. If we get this right, if we right-size capital, eliminate unnecessary gold plating, and build a framework that tailors requirements to actual risk, we can preserve what makes American banking exceptional. We do not want a barbell banking system in this country with a number of small banks and GSIBs and nothing in between. Achieving this stems from a well-calibrated capital framework that incentivizes growth and competition while maintaining safety and soundness. We must ensure that community banks continue to serve as economic anchors in small towns and rural communities. We must keep U.S. institutions competitive on the global stage, and we must create a regulatory environment that supports, not strangles, growth, innovation, and opportunity. So today I look forward to hearing from our witnesses about how we can design a capital framework that strengthens stability without sacrificing competitiveness, that respects the structure of the American banking system, that promotes the heterogeneity and diversity of that system, and reigns in the excesses of prior regulatory overreach.
Thank you, Chairman Barr and to our witnesses. I represent Woodstock, Illinois, where the film Groundhog Day was filmed. So here we go. I'm going to once again examine the regulatory capital framework for U.S. banks. Part of the prudential regulatory umbrella, capital standards provide a buffer against insolvency when financial institutions take losses, helping them weather economic downturns, failed investments, or the missteps of management. The 2008 financial crisis highlighted flaws in the regulatory framework for U.S. banks when the true risk of assets did not match the corresponding capital charge assigned to them. Supposedly well-rated mortgage-backed securities and off-balance sheet exposures received little supervisory attention, leading to massive losses and a crisis of confidence in the banking system when those same assets dropped by enormous amounts. In response to this crisis and the taxpayer-funded bailout of the U.S. financial system, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act to enhance the supervision and regulation of the financial system. Dodd-Frank took a tiered approach, applying the most stringent capital to the largest and most complex banks that posed the greatest risk to financial stability. The largest banks became subject to safeguards meant to prevent a similar crisis, including higher capital ratios, stress testing, resolution planning, and other prudential requirements. Following the financial crisis, financial regulators around the world, including the United States, convened in forums like the Basel Committee on Banking Supervision, to facilitate cooperation between member countries and enhance financial stability.
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