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Bipartisan Concerns Surrounding Capital Requirements

Bipartisan Concerns Surrounding Capital Requirements

by Starling Insights

Starling Insights Editorial Board

Sep 26, 2023


There is a widespread, ongoing debate regarding the Biden administration's proposed changes to bank capital requirements. In the US Congress, criticisms have come from both sides of the political aisle.

Many Republicans have echoed those in the banking industry who have expressed concern that the proposed capital buffer increases will hamper economic competitiveness, and cause harm to consumers and small businesses through reduced credit creation. In a recent letter to the leadership of the US Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency, all 29 Republicans Members of the House of Representatives Financial Services Committee called upon the regulators to rescind the proposed changes.

Perhaps more surprisingly, Democrats, too, have voiced concerns. While they have not come out in direct opposition to the Administration’s proposals, some have questioned the likely downstream impacts, particularly amidst the challenging economic environment that prevails today. "[I] want to make sure that when we think about the safety and soundness of the system, we think about the interaction between interest rate rise, capital standards and other factors," said Democratic Senator Mark Warner.

Politicians and policymakers who hope to further safeguard the financial system after the banking sector turmoil of this past spring, without risking the repressive economic impact that capital increases may entail, would do well to consider how supervisory efficacy and intensity might be advanced through the use of supervisory technologies (’SupTech’). Such tools may enable proactive assessment of risk governance measures — firm-level and system-wide — so as to facilitate early supervisory interventions, before risk governance failures lead to lost confidence in firms and markets.

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