Right-Sizing the U.S. Bank Capital Framework: A Return to Tailoring, Economic Growth, and Competitiveness

Digital Assets and Bank RegulationHouse Financial Services Subcommittee on Financial Institutions · 2025-12-11 · 119th Congress
The House Financial Services Subcommittee on Financial Institutions held this hearing to examine whether US bank capital requirements should be recalibrated ("right-sized") through tailoring, ahead of an expected revised Basel 3 endgame proposal from banking regulators. Begins at 0:21:35
Transcript
Highlights

Title

Right-sizing bank capital: tailoring, Basel 3 endgame, and AI risk

Purpose

The House Financial Services Subcommittee on Financial Institutions held this hearing to examine whether US bank capital requirements should be recalibrated ("right-sized") through tailoring, ahead of an expected revised Basel 3 endgame proposal from banking regulators. Witnesses from law, industry associations, and academia debated whether current capital levels are excessive and harm competitiveness and lending, or whether proposed reductions in capital and leverage requirements would leave the banking system dangerously exposed, particularly given emerging risks from artificial intelligence. Begins at0:21:35

Who spoke

Chairman Bar (R-KY)0:22:02: Argued the current capital system "goldplates" international standards and imposes one-size-fits-all mandates0:22:32; called for building on S.2155 tailoring and indexing regulatory thresholds to economic growth0:24:20; later pressed witnesses on double counting between risk-weighted and leverage requirements0:59:37.

Ranking Member Foster (D-IL)0:26:11: Traced capital regulation history since the 2008 crisis and Dodd-Frank0:26:37; warned that agentic AI could make bank runs happen "at the speed of AI rather than the speed of internet gossip"0:28:22; criticized Trump-era rollbacks of CFPB, stress testing, and FSOC staffing0:28:49.

Chairman Hill (Full Committee, R-AR)0:30:24: Said US banks remain well-capitalized and resilient but small/community banks face disproportionate compliance burdens0:30:24; called for tailoring based on size, complexity, and risk0:31:20.

Ranking Member Waters (Full Committee, D-CA)0:31:39: Said reducing capital for the largest banks will make them "less resilient, less likely to lend during periods of stress and more likely to fail"0:31:39; later pressed for her deposit insurance reform bill, the Employee Paycheck and Small Business Protection Act1:14:03.

Mrs. Margaret Tahyar, Davis Polk & Wardwell0:33:40: Said capital is "not the only tool" in the financial stability kit and calibration involves political-economy choices0:34:11; warned against a "barbell" banking system and urged data-driven, periodic review of capital rules0:35:06; later flagged the risk of double counting between leverage and risk-weighted requirements1:00:17.

Mrs. Amanda Eversole, Financial Services Forum0:37:44: Said US GSIBs have tripled capital to over $1 trillion but a 3% capital increase can cost the economy $100-150 billion/year0:39:09; said the 2023 Basel proposal would have raised capital 25% with 97% of comments opposed0:39:57; said the US GSIB surcharge is nearly twice foreign peers, tying up an extra $100 billion0:40:53.

Mr. Andrew Olmem, Mayer Brown0:42:33: Argued effective bank supervision is an essential companion to capital and current supervision is "too bureaucratic"0:43:52; said Dodd-Frank and S.2155 mandate tailoring so a $300 billion bank isn't regulated like a $2-4 trillion bank0:44:46; cited $38 trillion federal debt and US financial leadership as stakes0:45:34.

Mr. Mike Flood, U.S. Chamber of Commerce0:46:48: Cited a Chamber survey of 300 treasurers finding 87% of businesses negatively affected by financial regulation and 40% cutting customer services0:48:10; said a 1% capital increase produces a 13 basis point rise in loan spreads0:48:37; noted only 11 bank failures (0.052% rate) in five years and 45 new charters0:49:28.

Mr. Simon Johnson, MIT Sloan0:51:53: Said the weighted average SLR for the eight US GSIBs fell from near 7% (2017) to 5.8% now, and the FDIC's recent rule change could let it reach ~3.8%0:53:140:54:09; warned this mirrors pre-2008 conditions without cost-benefit analysis0:54:34; said AI could make bank runs happen in "seconds, not minutes"1:05:16.

Rep. Heisinger (Michigan)1:07:29: Described his own small business ending a line of credit due to cost despite not using it1:08:29; asked whether the current framework disadvantages US banks internationally1:10:58.

Rep. Waters (Q&A)1:12:44: (see above; questioning on deposit insurance and small-bank failures continued here)1:12:50.

Rep. Williams (R-TX)1:18:08: As a small business owner, asked about risk-weight disparities between public and private firms1:18:35.

Rep. Velázquez (D-NY)1:22:33: Asked about affordability for working-class families if banks fail, citing $60 billion set aside for underserved communities during COVID1:24:16.

Rep. Rose (R-TN)1:27:28: Noted the 2023 proposal would have raised capital requirements 16% on average, some banks over 20%1:27:54.

Rep. Scott (D-GA)1:32:48: Focused on agricultural hedging costs under Basel 3, asking about impacts on farmers' access to derivatives1:33:19.

Rep. Kim (R-CA)1:38:14: Noted 85% of community banks qualify for the Community Bank Leverage Ratio but only 45% use it, citing her Community Bank Lift Act1:38:43.

Rep. Sherman (D-CA)1:44:00: Criticized Basel 3 for discriminating against small businesses, first-time home buyers, and Treasuries while favoring corporate bonds and crypto assets; cited Silicon Valley Bank's $17 billion in unrealized losses1:46:13.

Rep. Loudermilk (R-GA)1:49:16: Discussed his Taylor Act requiring regulations tailored to risk profile1:50:03; raised succession-planning challenges for community banks1:50:36.

Rep. Lynch (D-MA)1:54:24: Argued the country is heading back toward 2008-style risk, citing Fed Vice Chair Bowman's moves to relax the SLR and stress testing and her remarks favoring bank competition in crypto1:55:14.

Rep. Flood (R-NE)1:59:35: Noted 60% of mortgages are now made outside the banking system versus 20% in 20082:00:14; asked about capital's role in bank consolidation2:03:49.

Rep. Moore (R-NC)2:04:35: Asked how tailoring should be strengthened for category 2-4 banks, referencing Charlotte-based banks2:05:00.

Key moments

Eversole said the 2023 Basel 3 endgame proposal would have increased capital for Forum members by 25%, with 97% of comments opposed and 86% of those from outside the banking industry0:39:57.

Johnson stated the weighted average SLR for the eight US GSIBs fell from nearly 7% in 2017 to 5.8% today, and that the recent regulatory rule change could let it drop toward 3.8% — mirroring pre-2008 leverage levels0:53:140:54:34.

Foster and Johnson debated AI risk at length: Foster noted Republicans declined to co-sign a bipartisan FSOC letter on AI risk1:03:54; Johnson warned AI agents could trigger runs "seconds, not minutes" after spotting weakness, even from social media rumors1:05:16.

Flood (Chamber) cited a survey of 300 corporate treasurers finding 87% of businesses negatively affected by financial regulation and a Basel study showing a 13-basis-point loan spread increase per 1% capital increase0:48:100:48:37.

Sherman argued the Basel 3 framework discriminates against home buyers, small businesses, and Treasuries while favoring public corporate bonds and crypto assets, noting Silicon Valley Bank had $17 trillion (as stated) in unrealized losses that were never marked to market1:46:13.

Tahyar and Olmem both raised the risk of "double counting" between leverage ratio and risk-weighted capital requirements as the leverage ratio has become a binding constraint amid Treasury market growth0:59:371:00:17.

Eversole said the US GSIB surcharge is nearly twice that of foreign competitors, tying up an additional $100 billion that could otherwise be deployed into the economy0:40:53.

Waters described a 2024 Oklahoma bank failure where uninsured depositors lost money — the 37th such case since 2007 — contrasting it with Silicon Valley Bank depositors who were fully protected, and cited her Employee Paycheck and Small Business Protection Act to address the disparity1:13:201:14:03.

Johnson quoted the White House's recently released national security strategy on resilient infrastructure, arguing it implies the need for more, not less, loss-absorbing bank capital1:56:04.

Flood (Chamber) said Basel 3 endgame would raise the risk weight on drawn lines of credit from 100% to 110% and on undrawn lines from 20% to 50%, while private companies would pay roughly 10.5% versus 7% for public companies on comparable loans0:49:011:09:00.

Metadata

CommitteeHouse Financial Services Subcommittee on Financial Institutions
Chamber / CongressHouse · 119th Congress
Date2025-12-11
TypeHearing
Witnesses
Mrs. Margaret Tahyar — Head of Financial Institutions, Davis Polk & Wardwell LLP
Mr. Andrew Olmem — Managing Partner and Co-Leader of the Financial Services Group, Mayer Brown
Mr. Mike Flood — Head of Center for Capital Markets Competitiveness, U.S. Chamber of Commerce
Mrs. Amanda Eversole — President and Chief Executive Officer, Financial Services Forum
Mr. Simon Johnson — Professor of Entrepreneurship, MIT Sloan School of Management
Videoyoutube
Transcript315 caption blocks · 17,908 words · 2:10:39 runtime
EventCongress.gov 118741