WASHINGTON — Banking trade groups continued their onslaught of criticism of federal regulators' plan to increase capital requirements on banks with at least $100 billion of assets, and seem to have found allies in that criticism in Republican lawmakers on the House Financial Services Committee.
Rep. Andy Barr, R-Ky., chairman of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy, criticized regulators for not releasing an economic analysis of the Basel III endgame proposal, echoing industry complaints.
"I suspect that many lawyers are salivating at the arbitrary and capricious nature of this rulemaking," he said. "It was proposed with no meaningful public input or quantitative … cost-benefit analysis."
Barr's comments follow a Tuesday letter from several top banking and financial industry groups — including the Bank Policy Institute and Mortgage Bankers Association, whose leaders testified at the House hearing — asking the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency to issue a new proposal. The letter accused the agencies of using nonpublic data for the proposal, which violates the standards of the Administrative Procedure Act.
At the hearing, Andrew Olmem, a partner at Mayer Brown, outlined part of the rationale that bank groups or Republicans could use to challenge the Basel III endgame proposal under the Administrative Procedure Act.
"Just to be clear, these aren't just technical process problems," Olmen said. "These are statutory violations."
He said that the Administrative Procedure Act is meant to make sure that agencies have a rulemaking process that allows public engagement, and that an agency can't "decide on its whim to take a particular action."
"It has to be reasoned and informed," Olmen said.
Republicans have some support from across the aisle, although Democratic lawmakers largely defended the proposal and the regulators' rulemaking process. In July, the ranking member of the committee, Rep. Bill Foster, D-Ill., joined Rep. Andy Barr in a letter to the Fed Vice Chair for Supervision Michael Barr on asking that the Fed provide any cost-benefit analysis, including supporting data, for its rulemaking related to capital rules.
Foster repeated his request for more visibility and information on the rulemaking process during the hearing.
"The details are important since they will undoubtedly have effects on the lending activity, market behavior and internal operations both of the large U.S. banks which will be directly impacted and the other players in the economy who will have to adapt to a new equilibrium," he said. "Because of that complexity, it's important that the public have maximum visibility into both the rules themselves and to the quantitative consideration that led to the final choices made."
However, Foster stopped short of explicitly mentioning the Administrative Procedure Act, and criticized Republican complaints about the rulemaking process by saying that regulators have three imperfect options for designing proposals and rules.
"You can just allow the banks to just use their in-house, homebrew models which are obviously open to gaming," he said. "If you suggest standardization but [with] simple rules, then the objection you get is this is a one-size fits all that doesn't really reflect the idiosyncrasies of our particular bank. And then if you adopt standardized but complex things then people say it's too long, it's too complex."
