HFS Republicans Question Fed's Role in Reducing European Bank Capital Requirements

Republican members of the House Financial Services Committee asked the Federal Reserve to explain its role in lowering capital requirements for large European banks without public input, while simultaneously moving to increase capital requirements for US banks.

In a letter to Federal Reserve Chair Jerome Powell, the signatories, led by Rep. Andy Barr (R-KY), Chair of the Subcommittee on Financial Institutions and Monetary Policy, criticized the Federal Reserve's decision to support a 2022 change made by the Basel Committee on Banking Supervision ("BCBS") that reduced capital surcharges for European Global Systemically Important Banks. Mr. Barr said the decision was made without public consultation, a move the representatives argued lacked transparency.

The HFS members asserted that the BCBS concession—to remove certain cross-border transaction calculations for European banks—was endorsed by Federal Reserve officials. They said that no action was taken regarding US banks facing a proposed 20 percent increase in capital requirements under the Federal Reserve's Basel III Endgame proposal. The representatives questioned why the Federal Reserve allowed European banks to benefit from lower capital requirements while advocating for stricter rules on domestic banks.

Describing the Federal Reserve's interactions with global governance bodies such as the BCBS and FSB as opaque, the lawmakers requested that the Federal Reserve provide documentation explaining its decision-making process, including records of its meetings with international regulatory bodies. They also sought clarification on how these actions align with US law and whether they serve US economic interests.