With Federal Reserve Vice Chair for Supervision Michael Barr set to speak at the 2024 U.S. Treasury Market Conference today, attention is turning to potential insights into the anticipated Basel III Endgame re-proposal. While Barr has previously outlined revisions, questions remain for what this means for Americans across the economy. As we look ahead, here are three key points to remember:
 
The anticipated revisions to the U.S. rules for Basel III Endgame will require American banks to maintain substantially more capital than those in the U.K. and the EU, placing the U.S. at a significant competitive disadvantage.

• Consulting firm PwC finds that Basel III Endgame would raise costs for American banks in ways that would not apply to foreign competitors. "Differences between the U.S. proposal and adoption of the Basel Framework in other jurisdictions could result in different capital treatment for similar risks across global banks. The NPR’s requirements would raise costs for U.S. banks in ways that would not apply to foreign competitors for the same transactions. This outcome would undermine the goal of having globally consistent capital requirements and create a misalignment of risk, whereby capital requirements for the same risks would differ by jurisdiction." (Adam Gilbert et al., "Basel III Endgame: Assessing the bigger picture," PwC, 2024)

The original Basel III Endgame proposal lacked a robust economic analysis.

• The Chamber of Commerce noted that the original proposal lacked comprehensive economic analysis, and thus underestimated its negative economic consequences. "Not only has a comprehensive economic analysis not taken place, but the basis of the Proposal is flawed. The Proposal is primarily based on an outdated QIS conducted by BCBS from 2017 that comprised a total of 248 banks, only 12 of which were US-based. 9 U.S. banks represent less than 5 percent of the banks that participated in the exercise. Undue reliance on data that fails to adequately represent U.S. banks could explain why the Proposal stands to create so many harmful downstream consequences for the American economy." (U.S. Chamber of Commerce Executive Vice President Tom Quaadman, Letter, 1/16/2024)

Opposition to the Basel III Endgame proposal extends beyond the banking sector. It's widespread, diverse, and bipartisan.

• Approximately 86% of negative comments posted during the public comment period for the initial version of Basel III Endgame came from outside the banking sector. (Latham & Watkins, "The Basel III Endgame Proposal: Public Comments Snapshots," 2/2/2024)
• 225 Democratic and Republican Members of Congress (including one Independent Senator who caucuses with the Democrats) wrote or signed letters expressing opposition to or serious concern with the initial version of the Basel III Endgame proposal. (Latham & Watkins, "The Basel III Endgame Proposal: Public Comments Snapshots," 2/2/2024)

The Basel III Endgame proposal revisions must address these shortcomings to protect American economic security and maintain U.S. competitiveness.