Basel III

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25 09, 2023

Karen Petrou: How to Right the Raft of New Rules

2023-09-25T09:28:19-04:00September 25th, 2023|The Vault|

What struck me most about the HFSC hearing at which I testified last week was how lukewarm Democrats are to the new rules unless they feel compelled to defend the White House or core political objectives.  When the partisan spotlight dimmed, more than a few Democrats said that the rules might have both small and even significant perverse consequences. Given that GOP-led repeal of the rules is impossible and court overturn is at best a lengthy process, hard work to get the rules more to the middle is essential.  Even if large banks still think the rules are bad, they’ll be better and that’s all to the good.

What’s the how-to?  In short, it’s a concerted campaign to fix the most problematic technical confusions in the massive body of new rules – these are manifest and manifold, focusing hard on obvious flaws and saving raging debates such as those over how big banks should be for another day.  I think this approach is best not only because it avoids political landmines, but also because it works.

In the mid-2000s, a group of custody banks with which we worked laid out numerous unintended consequences in the Basel II approach to operational risk-based capital.  By the time this landed in the final Basel III rules, it wasn’t great, but it was a lot, lot better in terms of actually capitalizing real risk at savings mounting to billions in what would have been unnecessary regulatory capital.

My testimony lays out a road-map of …

14 06, 2023


2023-06-14T15:34:59-04:00June 14th, 2023|5- Client Report|

Yellen Demurs on Resolutions, Capital Changes

Treasury Secretary Yellen was pressed at today’s HFSC hearing to comment on pending bank capital standards, the scope of FDIC coverage, and failed-bank resolutions.  Although she deferred to the banking agencies, she did agree to work with Rep. Foster (D-IL) to determine if additional guidance is needed to clarify the difference between the least-cost test and systemic stability.  Ms. Yellen was closely questioned about IFI policies to China and the need for U.S. sanctions, continuing to make clear that the U.S. is seeking what NSC Director Sullivan calls derisking, not decoupling. The Secretary also stood by FSOC’s positions in favor of swing pricing, stablecoin and crypto reform, and careful CBDC consideration.


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