The Government Accountability Office (GAO) recently published a report calling for improvements in regulatory analysis by financial federal agencies—including the Federal Reserve, FDIC, and OCC.

The GAO report echoes similar concerns from policymakers and other stakeholders regarding the Basel III Endgame proposal and the need for more robust analysis to justify its implementation:

• Federal Reserve Governor Michelle Bowman emphasizes that changes to Basel III Endgame should be "be accompanied by a data-driven analysis" that carefully considers the proposal's consequences. "Any next step in this rulemaking process will require broad and material changes. It should also be accompanied by a data-driven analysis of the proposal and informed by the significant public input received during the rulemaking process. This should assist policymakers in creating a path to improve the rulemaking. My hope is that policymakers pay closer attention to the balance of costs and benefits and consider the direct and indirect consequences of the capital reform…While these steps would be a reasonable starting place, they are not a replacement for a data-driven analysis and a careful review of the comments submitted. This would result in a better proposal that includes changes to address not only these concerns, but also many other concerns raised by the public." (Federal Reserve Governor Michelle Bowman, Perspectives on U.S. Monetary Policy and Bank Capital Reform, 6/25/2024)
• The ERISA Industry Committee voices concern about the proposal's lack of analysis on potential consequences for retirement plan participants. "The private sector defined benefit system has $3.71 trillion in assets, and the public sector another $9.47 trillion, according to a Congressional Research Service analysis of Federal Reserve data. Despite the potential implications, the economic analysis contained in the Proposed Rule contains no detailed analysis about the potential consequences for retirement plan participants. This is unacceptable. Without detailed and sophisticated regulatory analysis, the public lacks the information it needs to evaluate the potential effects on the retirement system. Once an analysis is published, the comment period should be reopened." (ERISA Industry Committee, Letter, 1/16/2024)
• The Committee on Capital Markets Regulation states the proposed rule fails to acknowledge the impact on the cost and availability of banking services. "The analysis fails to acknowledge that the contemplated capital increases could adversely affect banking activities other than lending and capital markets activities, such as custody and asset management. The analysis thus omits consideration of major costs potentially stemming from the Proposed Rule." (Committee on Capital Markets Regulation, Letter, 12/11/2023)

A revised proposal that does not fully consider the costs of its implementation could make borrowing more expensive, make hedging risk in a wide variety of sectors more difficult, and ultimately raise costs for consumers.