Part II: Reflections on the US Proposal, its Impacts on the Capital Markets and US Economy, and the Likely Road Ahead
As U.S. regulators consider how to implement the Basel III Endgame capital reforms, on Thursday, April 18, SIFMA hosted a second roundtable discussion on this critical issue, covering:
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To watch the July 2023 Roundtable on demand,
click here or download the transcript.
Michelle W. Bowman, Governor, Federal Reserve System
Kenneth E. Bentsen, Jr., President and CEO, SIFMA
Overall reflections on the proposal and an evaluation of the
proposal’s impacts on end users, US capital markets, and the broader economy
Participants will be invited at the outset to reflect on the comments and input that the agencies have received, including their views on the broader advocacy to-date surrounding the proposal. This may include a discussion of how the U.S. proposal “gold-plates” the Basel standards and deviates from the approaches taken in other major jurisdictions.
Participants will then be asked to provide their perspectives on the impacts of the Basel Endgame proposal on specific end users, capital market products and segments, as well as its impacts on economic growth and financial stability.
Deeper dive on the capital markets components of the proposal: identifying challenges and potential solutions
This session will highlight specific concerns about the capital markets portions of the proposal, specifically the FRTB and CVA components, as well as the SFT minimum haircut framework and the treatment of capital markets fee-based services under the new standardized approach to operational risk. As part of this discussion, participants will be asked to discuss potential impacts on asset-backed securities markets and the U.S. Treasury markets. Participants will be invited to provide their views on the potential impacts of these elements of the proposal as well as outline potential solutions that could be adopted in either a re-proposal or the final rule.
Discussion of the Basel Endgame’s interactions with other components of the capital framework and an evaluation of the road ahead
This discussion will highlight the ways in which the Basel framework interacts with other elements of the U.S. capital framework, particularly the Global Market Shock component of the stress testing regime, as well as its potential interactions with the GSIB surcharge and long-term debt proposals. Participants will be asked to evaluate the impacts of these interactions on aggregate capital levels and on the capital markets/economy more generally, as well their views on potential solutions that could reduce adverse impacts.
In conclusion, participants will be asked to provide their views on the process moving forward i.e., the timeline, likely changes, and the possibility of a rule re-proposal.
Prudential rules have made the financial system safer and stronger, and recent studies have found capital levels in the U.S. banking system are now optimal - balancing financial stability with economic growth. Further increases, including those being considered with the Basel III Endgame reforms, will have significant economic costs particularly on U.S. capital markets.
Policymakers should take into account the totality of prudential reforms and work towards a level of bank capital that provides a substantial margin of safety without impairing economic growth, lending, and capital markets activities.
Discover more at www.sifma.org/prudential-regulation.
