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June 21, 2022

Federal Reserve Must Explain Its Role in Basel Committee Reducing Capital on European GSIBs Without the Required Public Input

WASHINGTON, D.C.—Phillip Basil, Director of Banking Policy, issued the following statement in connection with sending a letter to Federal Reserve Chair Powell and Director Gibson urging transparency regarding the Fed’s involvement as a member of the Basel Committee on Banking Supervision in the decision to reduce the capital buffers of systemically important European banks:

“As the U.S. central bank and regulator of the largest, too-big-to-fail Wall Street banks, the Federal Reserve is a very influential and often decisive member of the Basel Committee on Banking Supervision (the Committee), an international organization that sets global standards for banks. The Committee recently lowered capital requirements for some of the world’s largest, most complex banks – so-called GSIBs – but it made that decision without justification or public input, a key pillar of the Committee’s own charter.

“The decision of the Committee essentially recognizes that the so-called European Banking Union (EBU) is in material respects a banking union in fact, which would require a pan-European, unified deposit insurance program, among other features.  However, that is not the case.  Moreover, the Committee took this action without support or justification or public input, all required by its own charter and guiding principles.  If necessary requirements were in place for an EBU, it might make sense to lower capital requirements for Europe’s systemically important banks, but only after being sufficiently justified after public input. Tellingly, other international organizations such as the International Monetary Fund have not recognized the EBU as a genuine banking union.

“No information related to the Committee’s consideration of taking such serious action has been made public, and so it is impossible to know the Fed’s input, analysis, or position on this matter.  Therefore, in our letter, we urge the Fed to promptly release a detailed statement disclosing the rationale around either its support for or opposition to the modification and the process that led to it. Given that the U.S. banking industry is already lobbying for the Fed to match the Committee’s action and lower capital requirements for U.S. GSIBs, the American public deserves to know how the Fed considered this key issue and its input in lowering the primary safety buffer to prevent future bailouts of the world’s too-big-to-fail banks.”


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