Stakeholders and policymakers are concerned and raising their voice about the Federal Reserve’s Basel III Endgame proposal. This proposal takes an overly strict stance against capital market activities, which are already subject to strict regulation.
Many groups and organizations are even calling for the Fed to repropose the rule entirely, or at least make significant changes to the rulemaking given the harm it could cause. Further, there has been an outpouring of bipartisan concern – with more than 220 members of Congress already weighing in.
Hundreds of stakeholders and policymakers underscore how the rule will make financing more expensive and raise costs for business and consumers. Industries, community leaders and policymakers are deeply concerned about the increased costs of goods and services. Concerned stakeholders range from companies and their customers, manufacturing firms, energy providers, pension funds and retirement savers to local governments and farmers.
Companies & Their Customers
Coalition for Derivatives End-Users
An organization representing hundreds of companies that employ derivatives to manage risk. More than 100 signatories such as AT&T, Hilton, Hertz, IBM, Marriott, PayPal, Southwest Airlines, Siemens USA, Volvo, Warner Bros. Discovery, Whirlpool and Yum Brands, commented under the banner of the Coalition for Derivatives End-Users.
“These results would be bad for consumers and bad for economic stability and neither result decreases risk to the broader U.S. economy—a flawed and detrimental result of the Proposals.”
Business Roundtable
An association of more than 200 chief executive officers of America’s leading companies representing every sector of the U.S. economy.
“We are concerned that the Proposal would make it more difficult and more expensive for banks to provide companies of all sizes the full range of services to meet their business needs…”
Pension Funds & Retirement Savers
Calpers
CalPERS is the largest public defined benefit pension fund in the United States, managing approximately $480 billion in global assets.
“We urge you to revise the Proposal to more accurately and consistently reflect the actual credit risks posed by highly regulated, transparent, low-risk public pension funds.”
American Benefits Council
Council members include over 220 of the world’s largest corporations and collectively either directly sponsor or support sponsors of health and retirement benefits for virtually all Americans covered by employer provided plans.
“The Banking Agencies’ Proposal is a threat to pension plans and should be withdrawn. If that is not done, it should be broadly revised to be inapplicable to transactions with retirement plans.”
State of Wisconsin Investment Board and the Ohio Public Employees Retirement System (joint letter)
The State of Wisconsin Investment Board is an independent state agency of the State of Wisconsin that invests the assets of the Wisconsin Retirement System and other state trust funds; and the Ohio Public Employees Retirement System is the largest public retirement system in Ohio with more than $110 billion in assets under management and approximately 1.2 million active, inactive, and retired members:
“…the Proposal would interfere with our ability to access critical services, manage our assets in ways that create value for our members, and allow us to prudently manage our risk.”
Farmers & Consumers
Group of Nine Trade associations in the Agriculture Space
Group includes the American Farm Bureau Federation and the National Council of Farmer Cooperatives, among others, that represent the interests of America’s farmers and cooperatives as well as for the commodity futures exchanges.
“We are very concerned that any contraction in the availability of clearing services will have a disproportionate impact on agricultural end-users that are far outside the major financial centers, especially smaller entities such as grain elevators and family farms.”
National Grain and Feed Association
The association consists of grain, feed, processing, exporting and other grain-related companies that operate more than 8,000 facilities handling U.S. grains and oilseeds, including grain elevators; feed and feed ingredient manufacturers; biofuels companies; grain and oilseed processors and millers.
“U.S. banks are major contributors to the clearing system, and we are concerned a contraction in the availability of clearing services will have a disproportionate impact on agriculture. We urge you to modify the proposals so that they do not disincentivize banks from providing this important service to their customers.”
Local Governments & Taxpayers
Group of Organizations Across The Municipal Debt Market, Nonprofit Borrowers, and Other Lenders/Underwriters
Organizations include Government Finance Officers Association, National Association of Health and Educational Facilities Finance Authority, National Association of State Treasurers, American Power Association, Large Public Power Counsel, Security Industry and Financial Markets Association, and Bond Dealers of America.
“We share the concerns of many stakeholders that the increased banking requirements, as proposed, would broadly tighten access to credit and pose economy-wide increases to borrowing costs. These concerns are elevated by the proposal’s release during a time of 30-year-high borrowing costs.”
Manufacturing
National Association of Manufacturers
The largest manufacturing association in the United States, representing nearly 14,000 manufacturers, small and large, in every industrial sector and in all 50 states.
“The Proposed Rule, if implemented, would have significant adverse consequences for manufacturers of all sizes throughout the U.S. In particular, it would harm smaller manufacturers who lack access to the capital markets and must rely on bank funding…”
Energy
American Public Gas Association
A national association representing the interests of public and community-owned natural gas local distribution companies.
“These regulations, if finalized, will unfortunately burden consumers with higher utility bills due to costs of upstream regulatory compliance obligations, instead of helping.”
NMPP Energy
A coalition of four organizations providing electricity, natural gas and utility-related services to nearly 200 communities in the Midwest and Rocky Mountain regions.
“The increased cost to use commodity derivative contracts to hedge will most likely be directly passed onto public gas systems’ customers in the form of higher utility bills.”
Insurance
American Council of Life Insurers
Advocates on behalf of 275 member companies whose products and services help 90 million American families achieve financial security.
“… capital requirements with respect to derivatives transactions should be either eliminated from the proposal or reconsidered and recalibrated in light of the broader regulatory context and with an eye toward preserving end users’ ability to hedge their business risks.”
A Group of the Country’s Largest Insurance Companies
The group includes Guardian Life, MassMutual, Nationwide, New York Life, Northwestern Mutual, Securian, TruStage, and Western & Southern.
“Although we appreciate the proposal’s desire for a simple, objective criterion, the proposal’s discrimination against non-publicly traded life insurers is wholly without merit and is inconsistent with the implementation of Basel III Endgame in other jurisdictions such as the United Kingdom and European Union. If this criterion is maintained, the proposal would be arbitrarily punitive to the longstanding Mutual Insurer business model that has served policyholders well for over a century and a half and closely aligns the interests of life insurers with their customers.”
Mortgage
Group Of Six Housing Industry Trade Groups
Group includes the Mortgage Bankers Association and National Association of Realtors, among others, that represent mortgage lenders, home builders, realtors, and the real estate finance industry.
“…believe the NPR will diminish access to mortgage credit and further reduce the affordability of housing for first-time homebuyers and underserved communities…”
Policymakers – House Letters
pragmatic Democrats Letter
Twenty-two moderate House Democrats signed a letter led by Rep. Bill Foster (D-IL) on concerns with the downstream impacts of the Basel III Endgame proposal.
“These adjustments, if not properly calibrated, may affect the cost and availability of financial services for individuals, and businesses of all sizes. It is essential to understand the downstream impact this proposal and the corresponding shift in bank behavior will have across the economy.”
“The Basel III Endgame rule, as proposed, exceeds the standards set by the Basel agreement in several ways…”
Bipartisan House Financial Services Committee Letter
The letter is led by Reps. Brad Sherman (D-CA) and Ann Wagner (R-MO) on concerns with the capital markets impacts of the Basel III Endgame proposal.
“We write to urge your agencies to consider the cumulative consequences of the proposed capital rule on capital market activities such as securities underwriting, derivative hedging, securitization, and equity investments in funds, and the potential subsequent effects that will be felt by investors, consumers, and U.S. businesses.”
“It could also become more expensive for states and localities to issue municipal debt used for public projects such as roads and bridges.”
Tri-Caucus Letter
Members of the Congressional Black Caucus, Congressional Hispanic Caucus and Congressional Asian Pacific American Caucus joined together to highlight concerns with the Basel III Endgame proposal’s impacts to mortgage lending and homeownership for underserved communities.
“We are concerned that the proposal may increase costs for mortgage lending and undermine efforts to support homeownership in underserved communities.”
House Democratic Letter Led By Rep. Sean Casten (D-IL) and 106 Other Colleagues
Letter highlights concerns to regulators over the proposals potential impact on tax equity funded investments, particularly the proposals impact on implementing President Biden’s clean energy policies.
“…the proposed rule would make it prohibitively expensive for banks to extend tax equity financing for clean energy project development, which would slow deployment of clean energy generation and manufacturing.”
Policymakers – Senate Letters
Sens. Kyrsten Sinema (I-AZ) and Mike Crapo (R-ID) Letter
Letter to regulators highlights specific concerns regarding the proposal provisions on market risk revisions and credit valuation adjustment.
“We are deeply concerned that Basel III Endgame, as currently proposed, would make it harder for families in our states to make ends meet, reduce economic opportunity for small businesses, and make it more expensive to build energy projects and affordable housing…”
Sens. Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY) Bipartisan Letter
Letter to regulators on concerns about several aspects of the proposal including domestic bank competitiveness, small business lending, and black homeownership.
“We fear the U.S. proposal could make U.S. banks less competitive and increased costs will be passed onto the consumer, without offsetting increases in consumer protection.”
Senator Jerry Moran (R-KS) and Rep. Zach Nunn (R-IA) Led a Bipartisan And Bicameral Letter
Letter is in opposition to the Basel III end-game proposal, highlighting the rules potential harmful effects for derivatives end-users such as farmers.
“Futures and derivatives markets provide critical tools to manage risk for farmers, ranchers, grain and food processors, energy producers, and other important commercial end-users.”
“Ultimately, consumers who are already facing elevated prices from record levels of inflation will pay the price at the grocery store and the gas station.”
Sens. Gary Peters (D-MI), John Hickenlooper (D-CO), Tom Carper (D-DE), Debbie Stabenow (D-MI) and Jacky Rosen (D-NV) Letter
Letter highlights concerns that the proposal could hinder lending to small businesses, particularly minority-owned businesses and underserved communities.
“This proposal could make it even harder for underserved and minority-owned businesses to access lending services in an already difficult market. Imposing higher capital requirements may add to pre-existing disparities by leading banks to further limit lending in areas perceived riskier, who too often include small businesses and households in historically underserved communities.”