Regulators extend comment period on Basel III endgame proposal

Anna Rose Layden/Bloomberg

Regulators have extended the comment period on a recent joint proposal to amend capital requirements for large banks and initiated a process to gather more information about the potential impact of the changes.

Banks and other interested parties will now have until Jan. 16, 2024 to weigh in on the so-called Basel III endgame package put forth by the Federal Reserve Board, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. The extension adds more than six weeks to the original 120-day comment period that was set to close on Nov. 30.

The Fed also launched a data gathering campaign on Friday, through which banks can disclose information about their current capital levels and their balance sheet compositions. Institutions will also have until Jan. 16 to submit this information.

The moves come after months of pushback by banks and their representatives, politicians and various other interest groups against the endgame proposal, which would amend risk-capital standards applied to all banks with at least $100 billion of total assets. 

Opponents have raised various issues with the reform package, ranging from concerns about specific provisions — such as the elevated risk weights applied to certain mortgages — to broad-based opposition to additional regulatory capital obligations. Common refrains also concerned the length of the comment period and the lack of analytical detail about the impact of the proposed changes.

The Bank Policy Institute, a lobbying group that represents large banks, said Friday's announcements should be the first of several steps taken by regulators to address the "significant problems" with their capital proposal.

"The agencies should have engaged in rigorous economic analysis of the proposal's costs before, not during, the comment period," BPI President and CEO Greg Baer said in a statement. "As a matter both of good policymaking and legal compliance, they must also give the public ample time — 120 days — to analyze and comment on the results of the impact study after they are released."

Baer also reiterated BPI's call for the agencies to re-propose the rule change after making changes.

When regulators issued the notice of proposed rulemaking on the package, Fed Vice Chair for Supervision Michael Barr said the central bank intended to "collect additional data to refine our estimates of the rule's effects."

Banks to see capital increase by 16% under Basel III endgame proposal

The collection initiative rolled out Friday is intended to generate data about both the capital proposal as well as a separate change to the surcharge applied to the largest, global systemically important banks in the country. 

"In particular, the Board seeks to assess the risk-weighted asset impact of the proposed revisions along with the potential impact of certain policy options," the form reads. "This data will assist the Board in understanding how various policy reform options could affect the banking organization."

Banks are being asked to disclose information that is not shared through public filings or disclosures, the form notes. The Fed has vowed to keep bank-level information private to the extent allowed under the Freedom of Information Act and release only aggregated data that "preserves an institution's anonymity and data confidentiality."

The information could be shared with the FDIC and OCC, but they would not be permitted to use it in a supervisory context, the form notes.

Participation by banks in the data collection effort would be voluntary. 

Along with the outside voices calling for changes to the proposal, several members of the Fed's Board of Governors have also expressed concerns about the reforms, including Govs. Michelle Bowman and Christopher Waller, who voted against issuing the proposal. 

In a speech this month, Bowman spoke about the importance of gathering strong research before enacting new policies, especially ones crafted in response to specific events, such as the string of bank failures that took place earlier in the year.

"Before we undertake reforms intended to address issues that led to bank failures, we need to develop a comprehensive understanding not only of those root causes, but also of the costs and unintended consequences of potential reforms," she said. "Research can protect against over-reactive regulation, especially that which is not efficient, calibrated and tailored to address the actual risks and challenges facing the banking system."

Capital reform is coming, but not without a fight

While Barr has said the types of changes being considered in the endgame proposal might have mitigated the issues at play in the failures of Silicon Valley Bank and others that failed this past spring, he has emphasized that the capital changes being considered are about finalizing the U.S. adoption of international standards and completing the reform process initiated by the Dodd-Frank Act of 2010, rather than as a response to recent events.

Fed Vice Chair Philip Jefferson has also said he wants more information before pledging his support to a final proposal. 

"I will evaluate any future proposed final rules on their merits. My views on any proposed final Basel III endgame requirements for U.S. banking organizations will be informed by the potential impact on banking sector resiliency, financial stability and the broader economy stemming from the implementation," Jefferson said during an open meeting about the proposal in July. "I look forward to reading and digesting the comments we received from the public, which will inform my future decision on any eventual proposed final approvals."