In recent comments to the Financial Times, Michael Hsu, US Acting Comptroller of the Currency, warned that a failure to implement Basel III capital requirements could lead to another financial crisis.
Such a failure would risk an international "unraveling" of financial stability regulations put in place after the Global Financial Crisis, Hsu said. This would create "unhelpful uncertainty for US banks, [that] could lead to a race to the bottom, which would sow the seeds for a future financial crisis and it would hurt US credibility and leadership on these issues," he argued.
Hsu's warnings come following the September announcement that US regulators would scale back the "Basel Endgame" capital proposal following fierce opposition from industry participants, advocacy groups, and legislators. When the new regime was proposed in July 2023, it included an increase in the capital big banks are required to hold of up to 19%. The revised plan will reduce that capital increase to 9%. However, it seems the industry is unlikely to accept even the softened proposal without a fight.
"The banks have pretty strongly indicated that they are not satisfied with the revisions the Fed has previewed," Dennis Kelleher, CEO of Better Markets, told the FT. “What you are seeing is the tip of the iceberg, and below the surface the lobby effort against Basel III continues.”
For more from Michael Hsu, read the Preamble he contributed to Starling Insights' 2023 Compendium.
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