Michelle W Bowman: The path forward for bank capital reform

Speech (virtual) by Ms Michelle W Bowman, Member of the Board of Governors of the Federal Reserve System, at the Protect Main Street, sponsored by the Center for Capital Markets at the US Chamber of Commerce, Washington DC, 17 January 2024.

Central bank speech  | 
23 January 2024

"More is better." This axiom often holds true in many respects, but experience also teaches us that there are limits. Today, I'm happy to join you here at the U.S. Chamber of Commerce to talk about proposed changes to bank capital rules in the United States and to probe the limits of the notion that "more is better" when regulators seek to apply it to bank capital requirements.

In July 2023, the federal banking agencies proposed changes to implement the Basel III "endgame" capital reforms. The published capital rulemaking proposal incorporated an expansive scope and a notable shift in approach by pushing down new Basel capital requirements to all banks with over $100 billion in assets, regardless of their international activities. The proposal would substantially increase regulatory capital buffer and minimum capital requirements for the covered firms. The comment period closed yesterday, January 16th. We've seen a robust response from commenters, with a large number of comments submitted during the latter part of the comment period. As a policymaker, I am pleased to see the careful attention stakeholders have paid to this proposal and the thoughtful feedback that has been provided during the comment period. Public input should help to improve the efficiency and effectiveness of the proposal.

From my perspective, given the significant response from a number of industries and perspectives, as a bank regulatory policymaker, the agencies are obligated to think carefully about the best path forward for this proposal. This should include making substantive changes to address known deficiencies with the proposal and giving the public an opportunity to comment on any reformulated proposal, to ensure the best possible outcome for the Basel capital reforms. That path should ensure that sufficient consideration is given to the wide-reaching consequences of capital reform to the U.S. banking industry, the U.S. economy, and, importantly, U.S. businesses. We should consider tradeoffs in addressing scope, calibration, and tailoring. And we should appropriately adjust the excessive calibrations and eliminate regulatory overreach in the proposed rule.