Barr Delivers Opening Remarks at Hearing to Conduct a Holistic Review of Regulators, Regulatory Overreach, and Economic Consequences

Hearing

"Last week we began a discussion of the so-called Basel III Endgame proposal put forward by federal banking agencies.

Today, we continue that discussion noting the fact that numerous other proposals have come out of the Democrat-appointed federal banking regulators over the past couple of months, with promises of more to come.

The Basel-related proposal is incorrectly pushed as a response to the March banking instability, has been delivered in an underdeveloped and hurried fashion, and, in many crucial areas, is glaringly arbitrary and capricious.

Following the Basel III and GSIB surcharge proposals from the Fed, certain regulatory officials wasted no time in their never-let-a-crisis-go-to-waste approach to rulemaking and guidance shifting.

Added to the regulatory onslaught have been proposals on long-term debt and resolution planning.

In speeches, agency officials have signaled that more is on the way.

A full-scale, rushed, and undeveloped rewrite of the rules of the road for the U.S. financial system is not warranted.

That is especially so as officials, including those making the recent proposals, and stress tests repeatedly say that U.S. banks are well capitalized and resilient.

While multiple proposals have been put forward and more are likely on the way, Congress and the American people have been left out of the information flow.

Indeed, members of Congress on both sides of the aisle have requested quantitative analyses, including cost-benefit analysis, of the Basel-related capital proposal, but we have been ignored.

No one knows how all the recent proposals work together, or not, and we have no indication from the Fed, FDIC, and OCC, which are populated with armies of economists, analysts, supervisors, and examiners, of their cumulative impact to the U.S. financial system.

Neither Congress, nor the industry being regulated, nor the American people, including consumers, families, small businesses, farmers and ranchers, and municipalities, know what to expect from the incredibly complex, interconnected, and hazy web of what has been proposed.

The risks of working hastily without analytical support are high and systemic.

The process of rolling out the under-analyzed Basel-related capital proposal shows clear violations of the Administrative Procedures Act, thereby running counter to the law.

That proposal also contains a repeal-by-rule-writing of bipartisan Congressional intent in the S. 2155 tailoring law, done so for partisan reasons.

There are some elements of the proposals for long-term debt, resolution planning, and GSIB surcharges that are worthy of discussion and analysis.

But a shotgun, total rewrite of the regulatory rules of the road is reckless and systemically risky.

The interconnected onslaught of proposals and guidance overhauls threatens both individual slices and segments of financial markets, and the system as a whole.

We know nothing of how they all fit together, or not, or what the systemic and other unintended consequences may be.

That requires analysis, which the federal banking regulators in their hurriedness have not done.

Will liquidity in Treasury markets dry up because of the tangled web of proposals?

Will first-time homebuyers be shut out of the dream of homeownership?

Will the car and truck buyers find they can no longer afford personal transportation because auto credit is too costly for most and not available for many?

Will financial institutions be forced out of entire business lines, such as provision of auto credit or market-making for Treasury securities, leaving consumers and investors to take the hit?

Will financing for new industrial projects and development in each of our districts dry up?

Will municipalities find it even more costly to finance their communities?

Will our loss of competitiveness in banking and finance resulting from the regulatory rewrite force U.S. jobs and economic activity to shift overseas, letting Europe and Asia prosper at a steep cost to Americans?

These are all questions that require answers before agencies promulgate a rulemaking.

However, Democrat-appointed federal banking regulators put forward this myriad of proposals to reregulate the banking and financial system and have offered no answers.

They may belatedly be beginning to look, as clear flaws in their proposals are glowing in the dark.

But unfortunately, markets have already begun to price in changes given the lack of clarity on these important questions, threatening a growing credit crunch.

The recent attempt by Democrat-appointed federal banking regulators to design some opaque Dodd-Frank 2.0 exercise on the cusp of a developing credit crunch needs to end.

Regulators should replace that process with proposals that deal with real problems facing our financial system, with full transparency and ample input allowed.

If not, as Chairman McHenry said last week, it will be American families who will ultimately suffer."

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