The U.S. House of Representatives passed a bill this week that would direct federal banking regulators to revise one of the formulas used to calculate the minimum amount of capital held by large, systemically important financial institutions.
Specifically, the bill would change the method banks use to estimate operating risk. Currently, banks estimate operating risk based in part on historical experience. With this new bill, the risk would be calculated based on forward-looking models that reflect each bank’s business activities.
“The implementation of the Basel Committee’s operational risk requirements has forced American banks to hold billions of dollars in reserve to account for activities they no longer practice,” Rep. Blaine Luetkemeyer (R-MO), the sponsor of the bill, said. “That means billions of dollars are currently sitting in banks across the nation instead of being lent to help businesses grow and create jobs in their communities. My bill takes a different approach, calculating reserve capital based on an organization’s current risk and business model. With this common-sense change, banks will continue to hold enough capital to manage risk while unshackling billions of dollars and injecting it into the U.S. economy.”
The bill passed by a vote of 245-169.
The Congressional Budget Office (CBO) said if the bill was enacted it would increase the deficit by $22 million over the 2018-2027 period. Further, it includes an increase of $26 million in direct spending and an increase of $4 million in revenues.