Stressed the Necessity of Competition in the Banking System  

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WASHINGTON, D.C. – The Senate Banking, Housing, and Urban Affairs (Banking) Committee held a hearing on the Federal Reserve’s semiannual monetary report to Congress. Federal Reserve Chairman Jerome Powell testified before the committee.

In July 2023, the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) announced proposed regulations to implement the final components of the Basel III agreement to raise bank capital requirements. The proposal was created to set the standards for capital reserves, liquidity, and leverage at financial institutions. Under the proposal, large banks will be mandated to transition to the new framework on July 1, with full compliance starting July 1, 2028.

U.S. Senator Kevin Cramer (R-ND) questioned Powell on the necessity of advancing a new Basel III proposal, specifically in the context of regional and community banks.

“Specifically, how would an updated regulation impact the ability of the regional banks to compete with the big Wall Street banks and what consideration should be taken into account to ensure that we have a competitive banking system,” asked Cramer. “For those of us who have largely regional banks, or the best of all of them community banks and credit unions, a competitive system is really important.”

“My own view has been that our banks are well-capitalized and Basel III was not supposed to be an exercise in raising capital on U.S. banks,” responded Powell. “[…] In terms of your [regional banks], they don't face the G-SIB [global systemically important banks] surcharges. They don't face quite the burden that the large banks face on resolution planning and that sort of thing. So we need those banks to be healthy and profitable because we need them to compete with the G-SIBs. We don't want a world where the G-SIBs just keep getting a bigger and bigger share of the economy. That’s not what we’re looking for.”

Cramer followed up by asking Powell, if he could “think of anything specifically that ensures that competitive, diverse banking system is maintained rather than a consolidation? Whether it's fewer community banks into more regional banks or fewer regional banks into more Wall Street banks?”

“You think twice before you impose the kinds of things that we impose on the largest banks and the next to largest banks, you want to be careful not to just think we should do exactly the same thing [to regional and community banks],” concluded Powell. “What tends to happen is, so for smaller banks, it raises the fixed costs and it makes it harder to start new banks and it makes it harder for any but the largest to be successful. So that's not what we want. We want a lot of competition and [for] these regionals it's important that they thrive.”

Following the introduction of the Basel III Endgame, Cramer has been vocal in his efforts to speak out about the misguided proposal. In January 2024, Cramer joined two letters citing concerns over the Basel III Endgame proposal’s impact on consumers and requesting the withdrawal of the proposal. Additionally, he cosigned a letter to highlight the impacts of proposed capital requirements for mortgage loans. Cramer also questioned Powell in a July 2024 hearing on the impacts it would have on electricity prices.