Senate Banking Committee Republicans have forwarded correspondence to Federal Reserve System Board of Governors Chair Jerome Powell, citing concerns regarding Federal Reserve capital review requirements.
U.S. Sen. Tim Scott (R-SC), ranking member of the Senate Committee on Banking, Housing, and Urban Affairs, joined nine colleagues in signing the letter to Powell.
“We write to express our concerns regarding the Board of Governors of the Federal Reserve System’s (“Federal Reserve”) ongoing, “holistic” review of capital requirements,” the legislators wrote. “In one of his first speeches as Vice Chair for Supervision of the Federal Reserve, Michael Barr stated that the Federal Reserve would take a holistic review of capital standards, without providing additional context as to what this review may entail.”
The lawmakers noted that any such review must follow the law and be tailored in the application, taking into consideration their capital structure, riskiness, complexity, financial activities (including the financial activities of their subsidiaries), size, and any other risk-related factors that the Board of Governors deems appropriate.
“As you are aware, the goal of regulatory capital is to support bank operations and to absorb unanticipated losses and declines in asset values,” the legislators concluded. “Therefore, bank capital and its quality must continually be evaluated and scrutinized to ensure it is tailored to the risks facing our financial institutions and their activities, thereby protecting the safety and soundness of our banking system. Otherwise, such reviews may unjustly increase capital requirements and have a chilling effect on market making activities and availability of financial services.”
The Federal Reserve must be fully transparent with Congress and the public throughout the capital review process. Senate Banking Committee members must be fully informed and provide analysis.