U.S. GOVERNMENT PUBLISHING OFFICE

54–177 PDF WASHINGTON : 2024

IMPLEMENTING BASEL III: 

WHAT’S THE FED’S ENDGAME? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND MONETARY POLICY 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED EIGHTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 14, 2023 

Printed for the use of the Committee on Financial Services 

Serial No. 118–45 

( 
(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

PATRICK MCHENRY, North Carolina, Chairman 

FRANK D. LUCAS, Oklahoma 

PETE SESSIONS, Texas 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

ROGER WILLIAMS, Texas 

FRENCH HILL, Arkansas, Vice Chairman 

TOM EMMER, Minnesota 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

WARREN DAVIDSON, Ohio 

JOHN ROSE, Tennessee 

BRYAN STEIL, Wisconsin 

WILLIAM TIMMONS, South Carolina 

RALPH NORMAN, South Carolina 

DAN MEUSER, Pennsylvania 

SCOTT FITZGERALD, Wisconsin 

ANDREW GARBARINO, New York 

YOUNG KIM, California 

BYRON DONALDS, Florida 

MIKE FLOOD, Nebraska 

MIKE LAWLER, New York 

ZACH NUNN, Iowa 

MONICA DE LA CRUZ, Texas 

ERIN HOUCHIN, Indiana 

ANDY OGLES, Tennessee 

MAXINE WATERS, California, Ranking 

Member 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DAVID SCOTT, Georgia 

STEPHEN F. LYNCH, Massachusetts 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

JIM A. HIMES, Connecticut 

BILL FOSTER, Illinois 

JOYCE BEATTY, Ohio 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

SEAN CASTEN, Illinois 

AYANNA PRESSLEY, Massachusetts 

STEVEN HORSFORD, Nevada 

RASHIDA TLAIB, Michigan 

RITCHIE TORRES, New York 

SYLVIA GARCIA, Texas 

NIKEMA WILLIAMS, Georgia 

WILEY NICKEL, North Carolina 

BRITTANY PETTERSEN, Colorado 

MATT HOFFMANN, Staff Director 
(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND MONETARY POLICY

ANDY BARR, Kentucky, Chairman 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

ROGER WILLIAMS, Texas 

BARRY LOUDERMILK, Georgia, Vice 

Chairman 

JOHN ROSE, Tennessee 

WILLIAM TIMMONS, South Carolina 

RALPH NORMAN, South Carolina 

SCOTT FITZGERALD, Wisconsin 

YOUNG KIM, California 

BYRON DONALDS, Florida 

MONICA DE LA CRUZ, Texas 

ANDY OGLES, Tennessee 

BILL FOSTER, Illinois, Ranking Member 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

JOYCE BEATTY, Ohio 

JUAN VARGAS, California 

SEAN CASTEN, Illinois 

AYANNA PRESSLEY, Massachusetts 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

September 14, 2023 .......................................................................................... 1 

Appendix: 

September 14, 2023 .......................................................................................... 39 

WITNESSES 

THURSDAY, SEPTEMBER 14, 2023 

Baer, Greg, President and CEO, Bank Policy Institute (BPI) ............................. 5 

Broeksmit, Robert D., President and CEO, Mortgage Bankers Association 

(MBA) .................................................................................................................... 6 

Olmem, Andrew, Partner, Mayer Brown LLP ....................................................... 8 

Philo, Alexa, Senior Policy Analyst for Banking, Systemic Risk, Economic 

Justice & Racial Equity, Americans for Financial Reform (AFR) .................... 10 

APPENDIX 

Prepared statements: 

Baer, Greg ......................................................................................................... 40 

Broeksmit, Robert D. ........................................................................................ 57 

Olmem, Andrew, ............................................................................................... 66 

Philo, Alexa ....................................................................................................... 76 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Baer, Greg: 

Written responses to questions for the record from Representative Barr ... 89 

Written responses to questions for the record from Representative 

Donalds .......................................................................................................... 90 

Written responses to questions for the record from Representative 

Waters ............................................................................................................ 92 

Broeksmit, Robert D.: 

Written responses to questions for the record from Representative Barr ... 93 

Written responses to questions for the record from Representative 

Donalds .......................................................................................................... 106 

Written responses to questions for the record from Representative 

Waters ............................................................................................................ 107 

Olmem, Andrew: 

Written responses to questions for the record from Representative 

Donalds .......................................................................................................... 108 

Written responses to questions for the record from Representative 

Waters ............................................................................................................ 110 

Philo, Alexa: 

Written responses to questions for the record from Representative Barr ... 112 

Written responses to questions for the record from Representative 

Donalds .......................................................................................................... 117 

Written responses to questions for the record from Representative 

Waters ............................................................................................................ 118 

(1) 

IMPLEMENTING BASEL III: 

WHAT’S THE FED’S ENDGAME? 

Thursday, September 14, 2023 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND MONETARY POLICY, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:02 a.m., in room 

2128, Rayburn House Office Building, Hon. Andy Barr [chairman 

of the subcommittee] presiding. 

Members present: Representatives Barr, Posey, Luetkemeyer, 

Williams of Texas, Loudermilk, Rose, Timmons, Norman, Fitzgerald, Kim, De La Cruz, Ogles; Foster, Sherman, Meeks, Scott, 

Green, Beatty, Vargas, Casten, and Pressley. 

Ex officio present: Representatives McHenry and Waters. 

Also present: Representative Himes. 

Chairman BARR. The Subcommittee on Financial Institutions 

and Monetary Policy will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the subcommittee at any time. 

Today’s hearing is entitled, ‘‘Implementing Basel III: What’s the 

Fed’s Endgame?’’ 

I now recognize myself for 4 minutes to give an opening statement. 

Federal banking regulators recently proposed several new rules 

to rewrite regulations in the financial system on a largely partisan 

basis. The proposed rule that would have the largest effect is a socalled Basel III Endgame proposal. That proposal is underdeveloped and misleadingly motivated, and was written behind 

closed doors principally by the Fed’s Vice Chair for Supervision as 

part of his holistic review. That proposal is being sold partly under 

the guise of implementing the Basel Committee on Banking Supervision’s recommended Basel III framework, thereby outsourcing 

U.S. standards to an opaque global governance committee in Europe. 

But the proposal put forward goes far beyond those recommendations. It would unfortunately put the U.S. ahead in a race to a 

gold-plated top for global capital requirements and push the U.S. 

to the bottom for global competitiveness. The proposal would install 

arbitrary and extreme increases in required capitalization for what 

regulators, Biden Administration officials, and Fed stress tests 

have said is an already resilient, well-capitalized U.S. banking system. The proposal is partisan, as evidenced by the Fed’s and the 
2 

FDIC’s Board votes and the lack of consensus and unanimity 

among Fed Governors and FDIC Directors. Partisan rulemaking by 

Democrat-appointed Federal banking regulators is a tacit admission that they are content surrendering independence of their agencies for short-term political gain. 

The Basel-related capital proposal lacks a convincing foundation 

and it is cynical to put it forward as a rationale for the non-credible 

evaluation of the March banking instability authored and engineered solely by the Vice Chair for Supervision at the Fed. The 

proposal appears, in many areas, to simply be arbitrary and capricious. The proposal was put forward with shockingly little quantitative analysis of what the impacts would be, and where the unintended consequences would be felt, and there is no substantive 

cost-benefit analysis. 

Members of this committee from both sides of the aisle asked for 

analysis from the Fed’s Vice Chair of Supervision, yet the request 

was essentially ignored. The proposal also presents unexplored 

threats to capital markets, including markets for Treasury securities, and no one knows how the proposal will interact with other 

recent proposals by the regulators, with yet more seemingly on the 

horizon. 

In a time of historic inflation, the fastest increases in interest 

rates in modern history, and a growing likelihood of a credit 

crunch, now is not the time to raise capital levels. Such action 

threatens to further constrain credit availability and put alreadysensitive sectors, such as commercial real estate, in further peril. 

The proposal would be an effective repeal by rule-writing of bipartisan congressional intent in the S. 2155 Tailoring law, a repeal 

that has been a partisan goal for some even before the March 

banking stresses and has essentially been instructed by President 

Biden. 

The Basel III Endgame proposal is just a start for Democrat-appointed Federal bank regulators. Since that proposal was made in 

July, proposals for long-term debt and resolution plans have been 

put forward, which this subcommittee will consider in our next 

hearing, and we have heard that even more is in the pipeline. Yet 

the regulators in charge will not directly tell Congress or the American people and possibly even their fellow board members of their 

plans. 

Federal banking regulation under the Biden Administration has 

become unnecessarily divisive and partisan, which itself is an 

emerging threat to stability. The divisive, underdeveloped, and arbitrary Basel III Endgame proposal should be withdrawn and replaced with a proposal that focuses on addressing problems that 

exist and uses adequate input from the private sector and Congress, as well as robust impact and economic analysis. 

The Chair now recognizes the ranking member of the subcommittee, the gentleman from Illinois, Mr. Foster, for 4 minutes 

for an opening statement. 

Mr. FOSTER. Thank you, Chairman Barr, and thank you to our 

witnesses for joining us. Today, we will discuss Federal prudential 

regulators’ joint proposals to implement the final components of 

Basel III agreements and modify capital calculations for U.S. global 

systemically important banks (G–SIBs). These proposals modify 
3 

capital requirements for the largest U.S. banks with a goal of ensuring that they appropriately account for the risk of their activities and hold the necessary assets and reserve to weather periods 

of significant stress in the financial system. 

The 2008 financial crisis and the subsequent taxpayer-funded 

bailout of banks and the long-lasting damage to the financial 

health of our country demonstrated the need for reforms to ensure 

the safety and soundness of the U.S. banking system. In the years 

that followed the financial crisis, Congress enacted the Dodd-Frank 

Act, and global regulators convened to develop what would become 

the Basel III framework, many facets of which have already been 

implemented. 

During the passage and implementation of the Dodd-Frank Act 

and the initial implementation of phases of Basel III, many predicted that the higher capital requirements would damage the competitiveness of the banking industry in the United States. They 

predicted that the increased capital requirements, particularly focused on the largest U.S. banks, would make it hard for large U.S. 

banks to remain profitable and to compete against both their international competitors and against their smaller competitors in the 

United States. 

In practice, the exact opposite has proven true. These firms continued to lend at record levels and earned record profits and 

outcompeted their foreign competitors in the stable and growing 

economy that followed those reforms. But as history has shown, 

threats to the financial system are dynamic, difficult to predict, 

and constantly evolving. Until recently, bank failures have been 

controlled, and have not required bank regulators to utilize emergency measures to head off systemic risk and contagion in the 

banking system. In an age of rapid financial innovation, internetdriven bank runs, rising geopolitical tensions, pandemics, and climate change, regulators and Congress must respect the lessons 

learned from the financial crises of our past, while also looking 

ahead and adjusting prudential standards as necessary to account 

for emerging risks. 

The proposals that we are discussing today are necessarily complex, totaling more than 1,100 pages. The details are important 

since they will undoubtedly have effects on the lending activity, 

market behavior, and internal operations both of the large U.S. 

banks, which will be directly affected, and the other players in the 

economy which will have to adapt to a new equilibrium. Because 

of that complexity, it is important that the public have maximum 

visibility into both the rules themselves and the quantitative consideration that led to the final choices made. 

For that reason, in July, I joined Chairman Andy Barr in sending a letter to the Federal Reserve Vice Chair for Supervision, requiring details of the analysis and supporting data used to carry 

out the holistic review of capital requirements that led to the proposals we are discussing today, as well as any other supporting 

data or key assumptions that have to be made. We must recognize 

that this is not a purely quantitative operation. The analyses of 

bank requirements have important assumptions that have to be 

made regarding the probability of financial failures for a given 

level of banking and the cost of those financial failures, although 
4 

it is unlikely those will be exactly calculable ever, but it is important the public see the key assumptions. 

The Federal Reserve’s response to date has not included this information we asked for, and I urge them to be more forthcoming. 

With that said, I look forward to hearing the perspectives of our 

witnesses today, and thank you again, Chair Barr, for holding this 

hearing. 

Chairman BARR. Thank you to the ranking member. The Chair 

now recognizes the Chair of the full Financial Services Ccommittee, 

the gentleman from North Carolina, Chairman McHenry, for 1 

minute. 

Chairman MCHENRY. Thanks, Chairman Barr. The Biden-appointed Federal banking regulators had the opportunity to learn 

from the March banking instability. They had the chance to productively engage with Congress and propose reasonable changes to 

regulation to improve safety, soundness, and stability. Instead, 

they took advantage of a crisis to justify their long-held, politicallymotivated priorities. 

Members of this committee on both sides of the aisle have asked 

for the economic analysis to justify the Basel-related proposals. The 

Fed’s Vice Chair for Supervision has essentially ignored that request. We need to know how this will impact inflation, which accelerated in August. What about the Fed’s rate policy, how does it affect that, or credit availability, how does it affect that or the cost 

of credit? We need to answer these questions for the American people whose day-to-day lives will only get harder if this is implemented. That is why Committee Republicans sent a letter this 

week calling on Biden’s regulators to rescind this deeply-flawed 

proposal. We need to see the economic analysis, the American people need to understand the justification, and we need to hold them 

accountable. I yield back. 

Chairman BARR. The gentleman yields back. The Chair now recognizes the ranking member of the Full Committee, the gentlewoman from California, Ranking Member Waters, for 1 minute. 

Ms. WATERS. Thank you very much. We certainly did receive a 

wake-up call this spring with the failures of Silicon Valley Bank, 

Signature Bank, and First Republic Bank. It became clear that we 

need to improve safety and soundness rules for large banks, given 

the systemic risks they can pose. To that end, regulators propose 

to strengthen bank capital requirements for the largest banks to 

ensure that, among other things, they hold sufficient capital for unrealized losses in their securities portfolios. 

I am talking about the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. They all are urging us to make sure that we do what is necessary to ensure the safety and soundness of our banks. Their proposal would also implement an international agreement that the 

United States made with other countries in 2017 that Mr. Trump’s 

regulators ignored while they prioritized deregulating big banks 

that could put our economy at risk. Here is the bottom line: We 

need stronger rules, not deregulation, to avoid future crises. 

Chairman BARR. The gentlelady’s time has expired. 

Ms. WATERS. I yield back. 
5 

Chairman BARR. Today, we welcome the testimony of Mr. Greg 

Baer, the president and chief executive officer of the Bank Policy 

Institute; Mr. Robert Broeksmit, the president and CEO of the 

Mortgage Bankers Association; Mr. Andrew Olmem, a partner at 

Mayer Brown; and Ms. Alexa Philo, a senior policy analyst for 

banking, systemic risk, economic justice & racial equity at Americans for Financial Reform. We thank each of you for taking the 

time to be here. 

Each of you will be recognized for 5 minutes to give an oral presentation of your testimony. And without objection, each of your 

written statements will be made a part of the record. 

Mr. Baer, you are now recognized for 5 minutes for your oral remarks. 

STATEMENT OF GREG BAER, PRESIDENT AND CEO, BANK 

POLICY INSTITUTE (BPI) 

Mr. BAER. Chairman Barr, Ranking Member Foster, and members of the subcommittee, thanks for the invitation to testify today. 

Congressional attention here is important, given the stakes for the 

U.S. economy. It is further warranted because the agency’s proposal would constitute a de facto repeal of regulatory tailoring legislation that Congress passed on a bipartisan basis in 2018. 

Before getting into the details of the proposal, I would like to dispel three misunderstandings that have arisen around it. First, 

some have suggested that it is a response to the failure of Silicon 

Valley Bank and a few others in March 2023. Those banks failed 

for two reasons: interest rate risk; and liquidity risk. The proposed 

Basel rule has nothing to do with liquidity risk or interest rate 

risk. It is about everything else: credit risk, market risk, operational risk, counterparty credit risk, and risk on derivative instruments. It is apples and oranges or apples and refrigerators. 

Second, some have suggested that this proposal is needed because bank capital models understated risk and caused the global 

financial crisis. An undisputed fact: No U.S. bank had adopted the 

internal models approach to capital assessment by 2008. The global 

financial crisis occurred on the watch of a Basel-standardized approach, remarkably, a standardized approach that this proposal 

will continue. 

Third, some believe that while significantly higher capital 

charges will push activity out of the banking system, there is no 

problem with that, as nonbanks will pick up the slack. There are 

a lot of problems with that. Banks lend at intermediated lower 

rates than nonbanks not because they are kinder or dumber, but 

rather because their deposit base gives them a lower cost and more 

stable source of funding. As a result, banks are the only reliable 

lenders during an economic downturn. 

I remember asking a fintech executive in March of 2020 how her 

firm had weathered the crisis. Her answer was, ‘‘It was easy. We 

just stopped lending.’’ Consistent with that, very recent research 

from the Bank for International Settlements found that non-financial firms cut lending by about 50 percent more than banks in the 

face of financial shocks. 

Turning to the proposal, the second half of the proposal was a 

series of formulas setting a risk weight for every bank loan or expo-
6 

sure, and the first half is a description of those formulas. What the 

proposal is oddly lacking is any explanation for how those risk 

weights were, in fact, derived. The proposal contains almost no 

analysis of the absolute or relative risk of the underlying assets or 

exposures. The absence of detailed historical analysis is incredible, 

given that the agency possess a massive database of historical experience and have easy access to market data. In place of analysis, 

the agency simply set the 2017 agreement negotiated by Agency 

staff in Basel as a minimum requirement for U.S. banks, but that 

agreement is not a treaty, and it carries no legal weight in this 

country. Furthermore, it was adopted before the Federal Reserve 

began to impose a stress capital charge for many of the very same 

risks contained in the Basel agreement. 

Most importantly, the proposal ignores reality. Since 2010, the 

nation’s largest banks have weathered very large macroeconomic 

shocks and market turmoil, benefiting from diversification across 

both product and geographic lines. In contrast, the proposed rule 

implicitly finds that every large bank in this country is undercapitalized and requires, on average, 16 percent more capital. The 

proposed rule is calibrated at such a high level that it will be difficult to offer products that the Basel formulas and the Fed stress 

testers favor. Thus, and to an unprecedented extent in the history 

of this country, the decision of whether you get that loan and how 

it will be priced would be shifted from banks and their loan officers 

to the formula writers in Basel and the stress testers at the Federal Reserve. 

Lastly, I should note that while the agency frequently refers to 

this as an implementation of the Basel agreement, the clear understanding at the time the Basel agreement was announced in 2017 

was that it would not increase capital for the covered banks and 

would probably decrease capital. This is completely inconsistent 

with that understanding. If the proposed rule were adopted, banks 

operating in the United States would be the only major banks in 

the world being assessed solely based on a standardized approach, 

would be the only banks in the world experiencing an explicit 

stress capital charge on top of that standardized charge, and would 

be the only banks in the world facing a variety of capital add-ons 

above the Basel-agreed risk rates. And we don’t know why, particularly for the regional banks, which Congress specifically said 

should be exempt from this kind of treatment. 

Thank you for your time. 

[The prepared statement of Mr. Baer can be found on page 40 of 

the appendix.] 

Chairman BARR. Thank you, Mr. Baer. Mr. Broeksmit, you are 

now recognized for 5 minutes to give your oral remarks. 

STATEMENT OF ROBERT D. BROEKSMIT, PRESIDENT AND 

CEO, MORTGAGE BANKERS ASSOCIATION (MBA) 

Mr. BROEKSMIT. Chairman Barr, Ranking Member Foster, and 

members of the subcommittee, my name is Bob Broeksmit, and I 

appreciate the opportunity to testify this morning on behalf of the 

Mortgage Bankers Association, the national association representing more than 2,200 member firms in an industry that employs 390,000 individuals and provides real estate finance-related 
7 

services in virtually every community across our nation. My over 

35 years of experience in real estate finance gives me a unique appreciation for the complexity of the housing finance system as well 

as the importance of ensuring that it works for all participants. 

MBA believes that this notice of proposed rulemaking (NPR) 

poses unwarranted risks to the U.S. economy, to housing, and real 

estate markets, specifically, and contradicts many of the Biden Administration’s policy goals. This includes efforts to close the racial 

homeownership and wealth gaps, the provision of affordable housing, the promotion of competition over consolidation, and the upcoming unveiling of a final Community Reinvestment Act rule. 

It is still unclear how the NPR interacts with other regulatory 

proposals and how these rules collectively could stunt economic 

growth and credit access needed to support the creation of more affordable housing from the largest providers of capital in the country. It is also unclear what specific problems the NPR is trying to, 

solve considering that the Federal Reserve and the U.S. Treasury 

have consistently stated that the banking system is strong. For example, capital ratios of large banks operating in the U.S. have 

more than doubled since the great financial crisis, and more than 

a decade of real-life experience has demonstrated that banks have 

adequate capital to withstand significant economic shocks. In fact, 

recent stress test results confirm that the banking system is safe 

and well-capitalized. 

The large increases in capital standards will likely stunt macroeconomic growth and reduce banks’ participation as single-family 

and commercial multi-family lenders and servicers, and as providers of warehouse lines and mortgage servicing rights financing. 

The proposed changes effectively increase capital requirements at 

larger banks by about 15 to 20 percent, large enough to impact 

which lines of business banks choose to withdraw from or support. 

The proposal makes significant changes to how banks calculate 

their risk-weighted assets and imposes several additional requirements on banks with assets of $100 billion or more, including lowering the cap on regional banks’ holdings of mortgage servicing 

rights to 10 percent of capital less than 5 years after it was raised 

to 25 percent to encourage more banks to service mortgages. And 

under the proposal—get this—every million dollars of capital an 

impacted bank allocates to mortgage lending would translate to at 

least $7 million less lending to first-time homebuyers who can’t 

come up with a 20-percent down payment. 

This, in turn, could cause banks to pull back even further from 

the mortgage business, making homeownership less attainable to 

first-time homebuyers and low- and moderate-income borrowers 

with smaller down payments. These borrowers overwhelmingly rely 

on low down payments to attain homeownership, and the proposed 

capital rule could discourage bank portfolio lending to these borrowers, driving all low-down-payment activity to the GovernmentSponsored Enterprises (GSEs) or government-insured and guaranteed programs. As a result, the proposed requirements could undercut the Community Reinvestment Act (CRA) and Special Purpose 

Credit Programs that leverage portfolio lending as strategies to 

close the racial homeownership and wealth gaps. 
8 

The failure of the proposal to provide any credit whatsoever for 

private mortgage insurance effectively defeats the purpose of that 

insurance and significantly increases costs for homebuyers. A capital regime that recognizes the mitigation of credit risk provided by 

private mortgage insurance is not only far more efficient, but also 

reduces costs and improves affordability for first-time and underserved homebuyers who cannot make a 20-percent down payment. 

Given ongoing affordable housing challenges, regulators should be 

taking steps that encourage banks to better support real estate finance markets. This proposal does precisely the opposite, despite 

near record low single-family delinquencies and pristine underwriting. 

In conclusion, MBA strongly opposes certain provisions of the 

proposal that undermine the mortgage market, and takes exception 

to the extremely scant economic analysis regarding how the 

changes will affect the economy, the single-family housing market, 

and the commercial real estate finance markets. Thank you for the 

opportunity to testify this morning, and I look forward to answering your questions. 

[The prepared statement of Mr. Broeksmit can be found on page 

57 of the appendix.] 

Chairman BARR. Thank you. Mr. Olmem, you are now recognized 

for 5 minutes. 

STATEMENT OF ANDREW OLMEM, PARTNER, MAYER BROWN 

LLP 

Mr. OLMEM. Chairman Barr, Ranking Member Foster, and members of the subcommittee, thank you for the opportunity to discuss 

the recently-proposed Basel III Endgame proposal. My testimony 

today is given in my personal capacity and not on behalf of Mayer 

Brown or any of its clients. 

The Basel III Endgame proposal represents a major shift in bank 

regulatory policy. By design, the proposal will have substantial 

long-term consequences for American households, businesses, and 

the overall economy. Yet, the significance of the proposal is not 

only its economic impact. The proposal does not satisfy well-established, congressionally-prescribed procedural requirements intended to ensure transparency, informed decision-making, and accountability. 

As if these errors are not enough of a problem, there is a more 

fundamental problem with the proposal. It disregards Congress’ 

mandates governing capital requirements. The problematic nature 

of the proposal is particularly consequential because capital requirements are among the most important regulations in economic 

policy. They not only ensure that the banking system is safe and 

sound but also influence the allocation of credit, determining if and 

on what terms credit is extended and by whom. Improperly-calibrated capital requirements can undermine economic growth and 

potentially threaten the stability of the financial system. It is 

therefore critical that capital requirements are appropriately calibrated and durable, yet this proposal falls short on both accounts. 

First, the proposal fails to provide the data supporting its policy 

choices and prevents an effective notice-and-comment period. 

Under the Administrative Procedure Act (APA), notice and com-
9 

ment is part of the process of formulating the rule. It is designed 

to provide an agency with valuable information from the public 

about how a rule could operate and its potential impact so that the 

agency can then use the information to improve the rule. That is 

why it is hard to understand why the banking agencies omitted the 

supporting data. The public could have used the data to provide 

more-informed comments and thereby help improve the rule. If the 

proposal is sound, the data will support it. If not, the proposal 

should be changed as the APA requires. 

The proposal also provides inadequate information about its potential impacts, including on lending to consumers and small and 

medium-sized businesses. It also does not discuss whether it could 

trigger mergers or change the structure of the banking industry. 

The rush to complete this proposal has left key questions unanswered. It has also left the proposal vulnerable to legal challenges 

under the APA. 

In addition, the proposal disregards Congress’ specific directive 

contained in both the Dodd-Frank Act and S. 2155 that the Federal 

Reserve tailor capital requirements. The law clearly states that the 

Federal Reserve, ‘‘shall differentiate among companies based on the 

individual basis by category, taking into consideration their capital 

structure, riskiness, complexity, financial activity, size, and any 

other risk-based factors the board deems appropriate.’’ 

Despite that clear language, the proposal embraces uniform cap- ital requirements for all banking organizations with $100 billion or 

more in assets, and all but eliminates the prudential tailoring 

scheme adopted by the Fed just 4 years ago. In the entire 1,087- 

page proposal, tailoring is mentioned only in a single footnote. A 

uniform one-size-fits-all regulation may be easier for banking agencies to implement and enforce, but Congress recognized that it does 

not account for the diversity of business models that are essential 

to finance the U.S.’s $23-trillion economy. 

That is why Congress enacted tailoring mandates in not one, but 

in two statutes in just the last 13 years. If the banking agencies 

believe that the tailoring mandates impede their ability to craft appropriate capital standards, the constitutionally-prescribed course 

is to request that Congress change the statute. Otherwise, tailoring 

and the APA remain the law of the land. It is the legal obligation 

of independent agencies to follow the statutory mandates established by this institution, not to selectively choose which to disregard. 

Going forward, what should be done to address the serious problems with the proposal? There is a common-sense solution. For the 

Basel II Capital Accord, the banking agencies first issued an advance notice of proposed rulemaking (ANPR). The banking agencies 

should now follow this precedent using a revised proposal that complies with their statutory mandates. Proceeding first with an ANPR 

allows for more time for thoughtful analysis of the proposal’s potential impacts. Analysis and the law should determine how the Basel 

Endgame proceeds. It is something we all should be able to agree 

upon. If Congress can help facilitate this prudent shift in approach, 

the country will be better for it. Thank you. 

[The prepared statement of Mr. Olmem can be found on page 66 

of the appendix.] 
10 

Chairman BARR. Thank you. Ms. Philo, you are now recognized 

for 5 minutes to give your oral remarks. 

STATEMENT OF ALEXA PHILO, SENIOR POLICY ANALYST FOR 

BANKING, SYSTEMIC RISK, ECONOMIC JUSTICE & RACIAL 

EQUITY, AMERICANS FOR FINANCIAL REFORM (AFR) 

Ms. PHILO. Thank you very much. Good morning. Thank you, 

Chairman Barr and Ranking Member Foster, for the opportunity to 

testify, and thank you, Chairman McHenry and Ranking Member 

Waters. 

I am the senior policy analyst on banking and systemic risk at 

Americans for Financial Reform (AFR), a coalition-based organization dedicated to advocating for a financial sector that serves workers and communities in the real economy, and for economic and racial justice. Before joining AFR, I worked at the Fed and in the 

banking industry on risk frameworks and regulatory adherence. 

I would like to talk about the importance for financial stability 

of the agencies following through on the capital proposals, the large 

bank proposal, and the Fed’s proposed rulemaking on this systemically important bank surcharge. These proposals will strengthen 

banks’ ability to withstand stresses that can otherwise imperil 

banks’ financial viability, and hurt depositors and customers in the 

economy. Just 6 months ago, we were powerfully reminded of how 

important it is for banks to be well-capitalized by the failures of 

Silicon Valley Bank, First Republic Bank, and Signature Bank, the 

second, third, and fourth largest banks to fail in this country. It is 

notable that all three were in the asset size band for which regulators had loosened guardrails in 2019. 

We continue to have a dangerous combination of, on the one 

hand, undercapitalization of some products, and, on the other 

hand, compensation practices that incentivize outsized risk-taking, 

which puts all banks at greater risk of succumbing to contagion 

like that observed in March 2023. And as we learned, without the 

right standards, a bank can look well-capitalized on paper but still 

lack a sufficient capital cushion to weather severe stresses. These 

capital proposals take very important steps to address that. 

One important feature is that the Basel III Endgame finishes incorporating lessons from 2008. The megabanks’ internal models fell 

short in the 2008 crisis. Regulators have placed limits on their use, 

but as former FDIC Chair Sheila Bair notes, the large banks are 

still relying on internal models that in some cases understate their 

risks and allow them to boost their returns. To address this, the 

Endgame requires reduced reliance on internal models, and tells 

firms to make the transition to improved, standardized approaches 

designed to be more risk-sensitive. 

Another important feature incorporates lessons from 2023. The 

proposal restores Basel III requirements for banks in the same 

asset band as the ones that failed in 2023, removes an opt-out 

clause showing unrealized securities losses in regulatory capital for 

the same band and the band above it in total asset size. Without 

an opt-out clause, banks will need to be more transparent about 

the impact of unrealized securities losses on capital in a high-interest-rate environment. And supervisors, depositors, and investors 

will be able to more clearly appreciate the massive impact the un-
11 

derwater securities would have on capital. This capital proposal 

will put a stop to the opt-out that makes these securities losses less 

clear. 

Now, a main claim of those against the proposals is that higher 

capital standards reduce lending. We disagree. As FDIC Chair 

Gruenberg noted, and as has been validated in studies, this is not 

the case. Equity capital is not locked away from supporting the real 

economy. Rather, it is deployed in numerous ways that benefit the 

bank, its stakeholders, and the economy. Also, more-robust capital 

standards reduce the risk of financial crises, which research shows 

are longer and more damaging than other recessionary periods and 

have a disproportionate impact on Black and Latinx, and, I believe, 

rural and other underserved communities. The issue is the bankers 

and bank lobbyists want lower and lower standards that make it 

easier for them to build up excessive risk positions, and they have 

compensation that incentivizes it. Lower capital standards also will 

enable more stock buybacks and dividends that also increase compensation. 

To sum up, the agencies should move forward on these proposals. 

More well-capitalized banks are better able to provide credit to customers and communities, advancing economic justice, and helping 

the economy work for everyone. Thank you very much for the opportunity to testify today. 

[The prepared statement of Ms. Philo can be found on page 76 

of the appendix.] 

Chairman BARR. Thank you. We will now turn to Member questions. And the Chair now recognizes himself for 5 minutes for questioning. 

At the outset, let me offer, without objection, a statement for the 

record from the Financial Services Forum. Without objection, that 

document will be submitted for the record. 

Let me start with Mr. Baer. I am very concerned about the impact on mid-sized and regional banks with the Basel III Endgame 

as proposed. Vice Chair Barr’s de facto repeal of the bipartisan S. 

2155 undoes tailoring, confirming capital requirements for all 

banks above $100 billion, which will result in a barbell banking 

system. We will have some community banks that are exempted 

from this proposal, and we will have too-big-to-fail Wall Street 

banks, but the regional banking sector is really in the crosshairs 

here. And this will result, as I said, in a barbell banking system, 

and it will eradicate the diversity that makes the U.S. banking system the envy of the world. 

Mr. Baer, please comment on the proposal’s impact on the regional banking sector? 

Mr. BAER. Sure. Thank you. First, I would just note that regional 

banks now are actually well-capitalized. Their challenge currently 

is actually an earnings challenge, especially at a time when deposit 

costs are rising and loan rates are not, and, of course, this would 

add a massive cost to them. If you think about the proposal, under 

the Basel, they were supposed to benefit credit because more 

granular risk weights would lower their credit charges, but here, 

the U.S. regulators have done add-ons, which they like to call, 

‘‘gold plating.’’ Regional banks will also see large operational risk 

charges, so they definitely come out net losers under this. 
12 

And then, more broadly on tailoring, even away from credit risk, 

they are subjected to a whole panoply of regulations that are not 

really fit for them. That includes detailed reporting on market 

risk—and they don’t take a lot of market risk—resolution planning, 

and the supplementary leverage ratio, again, things that aren’t 

really important substantively, but also come with a massive compliance burden. And, of course, that is one reason Congress enacted 

S. 2155. 

Chairman BARR. Thank you very much. 

Mr. Olmem, I was very impressed with your testimony relating 

to the Administrative Procedure Act. I suspect that many lawyers 

are salivating at the arbitrary and capricious nature of this rulemaking. It was proposed with no meaningful public input or quantitative analysis or cost-benefit analysis. The Fed said it will begin 

collecting an onerous amount of data from banks after they release 

the NPR, and the agencies have indicated that the provisions in 

the rule might change over time as the agencies speak with the 

public sector. These are process failures, and they mean that the 

public does not have the data on the final proposal to assess during 

the comment period to provide meaningful input on the proposal. 

Mr. Olmem, can you please touch on these many administrative 

law fouls? If the Fed was still molding the proposal and collecting 

data, shouldn’t they have proposed an ANPR to allow industry experts to provide input? 

Mr. OLMEM. Yes, thank you for the question, and just to be clear, 

these aren’t just technical process problems. These are statutory 

violations. The Administrative Procedure Act is a Federal law enacted by this institution to make sure that when agencies engage 

in rulemaking, they have established a process that allows the public to engage and that requires agencies to act in an informed basis 

using the best available data. So, an agency simply can’t decide on 

its whim to take a particular action. It has to be reasoned and informed to help make sure there is good rulemaking in this country. 

Chairman BARR. Thank you. 

Mr. Broeksmit, I want to talk about commercial real estate. You 

talked about residential real estate, so let me talk about commercial real estate. I am very concerned that we have $1.5 trillion of 

commercial real estate loans coming due. Many of them are set at 

3.5 percent. They are going to have to refinance at 7, 7.5, or 8 percent because of higher interest rates; $5.5 trillion of commercial 

real estate debt is out there, and about 50 percent of this is held 

by commercial banks. These loans were financed when rates were 

around zero percent. We know that financial markets will be affected immediately by the onslaught of new and onerous regulations. Is now the time to undermine the ability of banks to lend 

and to intermediate in commercial real estate markets? 

Mr. BROEKSMIT. Chairman Barr, we are very concerned about 

the same issue, and it goes back to the issue that all three of us 

have discussed, about the lack of any economic underpinning not 

only to the rule itself, but how it interacts with other rules. You 

have another rule that is being made final for the Community Reinvestment Act that discourages banks from making multi-family 

loans for new apartments, for instance, and this will interact with 

that in a way that can really slow down our economy. 
13 

Chairman BARR. My time has expired, but I would hope that 

some of the political people at the White House would inform the 

Fed that they don’t want a recession right before an election. The 

gentleman from Illinois, Mr. Foster, is now recognized. 

Mr. FOSTER. Thank you, Mr. Chairman. It seems like the rubber 

hits the road here with the risk weighting of assets, and there are 

sort of three general approaches. You can just allow the banks to 

use their in-house home-brew models, which are obviously open to 

gaming. If you suggest standardization but simple rules, then the 

objection you get is, oh, it is just a one-size-fit-all. It fits all. It 

doesn’t really reflect the idiosyncrasies of our particular bank. And 

then, if you adopt standardized but complex things, people say, oh, 

that is too long, it is too complex. How do you view the tradeoffs 

between those three? Just to get started, do you think that directionally, it is a good thing to move away from in-house modeling 

of these risks? Is there anyone who thinks that it is a mistake to 

move away from in-house modeling? Mr. Baer? 

Mr. BAER. Yes. By the way, I think that was a terrific summary 

of why capital regulation is very difficult. It actually involves all 

of the tradeoffs you mentioned and it is not easy, so while we are 

critical, we understand this is not a simple matter. But if you talk 

about the Basel Accord on credit risk, the entire purpose of the 

Basel Accord in 2017 was to preserve the use of bank models. That 

was its core, and as Europe and the U.K. have implemented it, 

they have continued to use bank models. 

The idea was that you would allow banks to use models, but then 

there would be a floor to how low the risk weight could be produced, and they set that floor at 72.5 percent after a lot of haggling. So basically, your internal risk models can’t show less than 

72.5 percent of what a standardized charge would do. That seemed 

like a pretty good compromise. 

I would also note that bank internal models used in the United 

States, which is only really the largest banks under what is called 

the advanced approaches, are back-tested constantly. They are 

back-tested by compliance staff, risk staff, audit staff, and, most 

importantly, by Federal examiners. We have been doing this for 

quite some time. We have not seen enforcement actions for gaming 

or misstating. Research that one of my colleagues here and another 

Ph.D. economist did showed that there is actually no evidence that 

there are significant deviations among banks when it comes to 

modeling whether a credit is investment grade or not. So, it is odd 

to expect some of that—— 

Mr. FOSTER. Okay. I would like to spread out the answers a little 

bit, because it is my memory that the internal risk models failed 

pretty spectacularly back in 2008. 

Ms. Philo, do you want to comment on internal risk modeling? 

Ms. PHILO. You bet. Internal models have been a primary focus 

of the proposal for a reason. There has indeed been substantial variation, and the variation is a tremendous challenge to be able to 

interpret and have a level of transparency around the models. In 

modeling, there is something called assumptions, limitations, and 

weaknesses. If you have good oversight, your assumptions will be 

robust. And yet, I think for the industry at large, assumptions, limitations, and weaknesses is something they are all progressing on, 
14 

and I think we have to have the appropriate humility. So, I believe 

the internal models have been a substantial problem coming out of 

the 2008 crisis, and I believe this proposal is essential to remedy 

that. 

Mr. FOSTER. Okay. And what about the complexity issue? I don’t 

think there is any way to write a brief rule here that really reflects 

the big variety of bank business models. Do any of you have any 

comments on that? Are your objections mainly to the details of 

what is in this complex, and you wish this coefficient were different 

in that there were better data behind the coefficient, or do you 

have problems with the whole approach of a complex thing that 

really reacts differently to different businesses? 

Mr. BROEKSMIT. Ranking Member Foster, I wanted to go back to 

your original question about the three ways one could do this, and 

I think the Basel III risk weights for mortgages has that right mix. 

It is based on loan-to-value, and clearly, a loan with a bigger down 

payment is less risky than a loan with a smaller down payment, 

and that is what the Basel III recommendations recommend. 

Mr. FOSTER. That is loan-to-value at origination or—— 

Mr. BROEKSMIT. Yes. 

Mr. FOSTER. Okay. Because, obviously, the risk of a half-paid-off 

mortgage is a whole lot smaller. 

Mr. BROEKSMIT. Yes, but it is—— 

Mr. FOSTER. That is, for example, a complexity that you could 

add to this that would reflect the evolving risk of a mortgage as 

it gets paid off. 

Mr. BROEKSMIT. Which would lower the capital requirements as 

equity improved. Of course, we would be happy if that were a part 

of it. What I am saying is that I think they hit the middle ground, 

but then the regulators gold-plated it by 20 percentage points, and 

it is just not warranted. 

Mr. OLMEM. What I would add there is, this is why there needs 

to be more data. As you know, capital requirements are very complex and there needs to be a very robust process. I would note also 

that the Basel II process took several years. There was an ANPR, 

and multiple proposals, and my testimony contains a whole list of 

all the hearings that this committee held over the past several 

years. 

Chairman BARR. The gentleman’s time has expired. The gentleman from Florida, Mr. Posey, is now recognized for 5 minutes. 

Mr. POSEY. Thank you very much, Mr. Chairman. 

Mr. Baer, have the Federal Basel III regulators conducted an impact study? 

Mr. BAER. Yes. The discussion of costs and benefits in the proposal is extremely cursory, contains no data, and does not include 

potential overlaps between that rule and other rules, including, 

most notably, the Fed’s stress test. I think everyone in academia 

and regulation understands, contrary to some other testimony, that 

there are costs to raising capital. In fact, the whole reason the regulators want a countercyclical capital buffer is because they know 

that when you raise capital, that diminishes economic activity. 

In past crises, the regulators have relaxed capital standards explicitly to increase growth. The Basel Committee estimate is that 

every 1 percentage point increase in capital requirements reduces 
15 

annual GDP by 16 basis points, which means that this proposal 

would permanently reduce U.S. GDP by $67 billion a year. That is 

the Basel Committee of which these regulators are a part. 

There is uniform agreement on this in academia. The tough 

thing, of course, is trading off that diminishment in GDP with any 

reduction in the risk to the banking system and a reduction in financial stability risk, but this proposal does not do that weighing 

at all. It is a benefit-benefit analysis. 

Mr. POSEY. Okay. So, they did a cost-benefit analysis? 

Mr. BAER. There is no rigor whatsoever. I think it is maybe a 

couple of paragraphs, maybe a couple of pages, but it basically 

says, we thought about it and we believe that the benefits exceed 

the cost, but there are no numbers attached to that. 

Mr. POSEY. Wow. I was going to ask you for the impacts, and you 

have talked about some of the impacts already. After the dramatic 

failure of the banks’ supervision related to Silicon Valley Bank, 

might it be more beneficial to reform the banks’ supervision and 

promulgate new capital rules, in other words, for the bank supervisors to clean up their own house first? 

Mr. BAER. I think part of it was a failure of supervision and not 

incidentally bank management, but again, this was a liquidity 

problem, a depositor concentration problem. If you think about it, 

you never used to ask, ‘‘Do all my depositors know each other?’’ 

Well, in Silicon Valley Bank, they were all on the same text chain. 

That is not something other banks do. That is not a difficult problem to solve. I think other banks have demonstrated that actually 

their depositors don’t know each other. They are in different industries in different parts of the country. 

I think that should have been the initial focus for how to fix this. 

There are some very smart things you can do around ensuring that 

banks are prepared to borrow with a discount window or that the 

Fed is prepared to lend. There are a whole series of smart things 

you could do here to make the system safer. But the answer to a 

liquidity crisis at a bank that had a unique balance sheet is not 

to say, Truist needs to hold more capital for its mortgage loans, or 

JPMorgan needs to hold more capital for its market making. It 

doesn’t have anything to do with that. There is nothing holistic 

about this. This is not a tailored or a smart response to what happened in March 2023. 

Mr. POSEY. Thank you very much. I had a couple of other questions, but you answered them in the context of the other questions. 

So, Mr. Chairman, I thank you for the time, and I yield back. 

Chairman BARR. Thank you. The gentleman yields back, and 

now the gentlewoman from California, Ms. Waters, is recognized. 

Ms. WATERS. Thank you very much. I will address my first question to Ms. Philo. While big banks and Republicans complain that 

this proposal to strengthen capital requirements will stop lending 

and crush the economy, I think it is very important that we put 

their critiques into perspective. To start with, Ms. Philo, isn’t it 

true that this proposal does not apply to community banks at all? 

It only applies to large banks with more than $100 billion in assets 

or those with extensive Wall Street-like trading operations? 

Ms. PHILO. Correct. Thank you, Ranking Member Waters. It does 

not impact community banks, and the preponderance of the im-
16 

pacts are on the largest banks, those banks which have relied most 

on internal models in the past, and also in the realm of operational 

risk, where they have had substantial operational incidents in their 

past. Community banks are not impacted, and as we know, community banks are essential for making sure lending is available 

through the lifecycle for some of the most vulnerable communities 

in our country. 

Ms. WATERS. Ms. Philo, while we have heard some say capital 

was not an issue with the regional bank failures earlier this year, 

we had a Republican witness at an earlier hearing affirm that capital was part of the problem with Silicon Valley Bank’s failure, specifically relating to available-for-sale securities for regional banks. 

As I recall it, there was a run on Silicon Valley Bank, and that run 

occurred when they had to sell off their securities portfolio at a big 

discount and they went to the market looking for capital, and that 

is when everything broke out and investors began to understand. 

So capital, or the lack thereof, did play a role in that failure, 

wouldn’t you say, Ms. Philo? 

Ms. PHILO. Yes, I believe that a critical factor here was that you 

had a certain amount of capital, but there was a lack of transparency on how the underwater securities would impact that capital. And investors, when faced with uncertainty and a lack of 

transparency, all of a sudden that capital cushion or that confidence capital cushion really, frankly, may not be enough, and we 

certainly learned that in 2008. I think there are corollaries here in 

the Silicon Valley Bank context in terms of how the investors reacted to the level of capital once they knew about those and were 

face to face with the realized losses. Thank you. 

Ms. WATERS. I asked Margaret Taylor, a partner at Davis Polk, 

about this when she testified before the committee in May. And she 

responded that, ‘‘I also think that the not passing through AOCI 

in capital, which is something that has been on the books since 

2013, should be revisited.’’ So going further, indeed, the Fed found 

that there was a $1.9-billion capital shortcome or nearly 2 percent 

of its capital when Silicon Valley Bank was able to have their unrealized losses in their securities portfolio exempted from its capital 

requirements. 

This is an issue that would be addressed in this proposal. Fed 

Vice Chair Barr explained, ‘‘If the bank had already been required 

to include those losses in its reported capital, it is less likely that 

the market and depositors would have reacted the same way.’’ Furthermore, banks that were required to reflect unrealized losses on 

available-for-sale securities in regulatory capital managed their interest rate risk more carefully, suggesting that the requirement to 

include gains and losses on available-for-sale securities in regulatory capital leads to stronger risk management as well. 

Ms. Philo, we heard testimony from others today that capital was 

not an issue with the failure of Silicon Valley Bank. Do you agree 

with me that we need to reiterate that capital clearly was an issue, 

and that we need to strengthen capital requirements by our largest 

banks, given the risk that they pose? 

Ms. PHILO. I do. I do believe that capital was an issue, and it will 

potentially remain an issue for that band of total assets. Silicon 

Valley Bank was a highly-vulnerable firm in ways that Silicon Val-
17 

ley Bank’s board of directors, senior management, and Federal Reserve’s supervisors failed to act on, and one reason for that was a 

lack of true transparency around the precise level of their capital. 

Chairman BARR. The gentlelady’s time has expired. 

Ms. PHILO. Thank you. 

Chairman BARR. The gentleman from Missouri, the Chair Emeritus of this subcommittee, and the current Chair of our National 

Security Subcommittee, Mr. Luetkemeyer, is now recognized. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. And I thank the 

witnesses for being here this morning. We had testimony from the 

regulators as well as the bankers involved in the March banking 

crisis in a hearing that we had, and it would appear to me that 

the regulators are probably as much to blame as the banks. All of 

them had business models outside the norm and were allowed to 

continue that outside-the-norm business model by the regulators, 

who, quite frankly, admitted in front of us that they didn’t do their 

job. 

So now, it looks to me like we have the regulators saying the old 

adage of, never let a crisis go to waste. It looks like we are sitting 

here now with the regulators, who should be finding a way to clean 

up their own act, of now using this as a way to institute a Basel, 

which, to me, is something we shouldn’t be concerned about. 

Mr. Baer, why is it a good idea to implement Basel III standards, 

which are European standards, on our American banks, on the 

American banking industry? I see you chuckle, because you are like 

me. This is nonsense. 

Mr. BAER. There is a notion that there should be international 

comity—that is, ‘‘ity,’’ not, ‘‘edy’’—with respect to capital standards, 

so it is not a bad notion to go off and talk about it and try to get 

banks more or less around the world on something for—— 

Mr. LUETKEMEYER. Wouldn’t it be a better idea for the European 

banks to actually follow our models, because we have one of the 

biggest and best financial markets in the world, and we want to 

turn it around and use a failed model of the European banks, 

which are all bankrupt and government takeovers basically at this 

point? 

Mr. BAER. I think the worst of this is that the agency staff, not 

even at the Board level, went over and negotiated this, but then 

have, again, continually added on and implemented it here in a 

way that is not fit-for-purpose. 

To me, the best example of that is, whether it is operational risk, 

market risk, particularly market risk, while Basel was considering 

all of this, the Federal Reserve implemented a global market shock 

and a stress capital buffer to cover those risks, then over the years 

they negotiated in Basel a second way to cover that. And every 

other country in the world, I believe, is going to implement the one 

in Basel and we are going to implement both. 

In terms of holistic reviews, you can think about Basel as a good 

place to start, but that does not relieve the agencies of the obligation to document the risk weights, to prove—and maybe things 

have changed since 2017—where they got the risk weights, why 

they think this is appropriate, and then to consider what else they 

are doing and how it relates. 

Mr. LUETKEMEYER. Okay. 
18 

Mr. Olmem, it would seem to me that by implementing this, it 

would send a message that their stress tests are inadequate to actually be able to do the job of predicting a problem, understanding 

how a situation could be resolved, understanding how strong a 

bank may be. If you are going to have to jump up the capital ratios 

here, it looks to me like it is a testimony to the fact that stress 

tests aren’t working. How would you comment on that? 

Mr. OLMEM. One of the interesting things about the proposal is 

it doesn’t reflect all of the other work that has been done over more 

than a decade, starting with Dodd-Frank, which I think at the time 

was sold as the final chapter in bank regulation, and yet, since 

then, we have had a whole series of additional pile-on regulations. 

I think a common-sense way to think about this is, when is enough 

enough? And the reaction every time a bank fails, which happens 

in commerce, capitalism, is that we go on and have another wholesale revision of capital requirements. 

Mr. LUETKEMEYER. You mentioned the tailoring situation, and 

we discussed it, the chairman discussed it. It would appear to me 

that if we are going to basically repeal S. 2155 and replace it with 

this one-size-fits-all, that the small banks are going to be the losers 

in this. Would you comment on that? 

Mr. OLMEM. I think that is one of the big concerns here, is that 

there is a remarkable diversity of institutions that are covered by 

this and you are going to have a one-size-fits-all approach to regulating them, and that over time, the risks will converge in business 

models because that is easier to regulate. And losing that diversity 

in business models really does undermine the vitality of our banking system. 

Mr. LUETKEMEYER. Thank you for that. 

Mr. Broeksmit, you made a comment that for every million dollars worth of capital increase, we lose $7 million of lending ability, 

and I think Mr. Barr mentioned that this is going to cost $67 billion in GDP per year. Do you have a cost of what it would be for 

the home mortgage market, what the cost is going to be to the consumers, to the banks, and to the lenders? 

Mr. BROEKSMIT. The cost to consumers is that there will be fewer 

sources of mortgage financing and that mortgage servicing rights, 

which this proposal caps at 10 percent instead of 25 percent, will 

go down in value. And that affects the price of every loan regardless of whether it is made by a bank covered by this proposal or 

anyone. 

Mr. LUETKEMEYER. And that is going to really hurt the low- and 

moderate-income folks because of the increased cost of a loan. 

Mr. BROEKSMIT. That is correct. 

Chairman BARR. The gentleman’s time has expired. The gentleman from California, Mr. Sherman, is recognized. 

Mr. SHERMAN. Mr. Baer is right to point out that increasing capital is not free. It does reduce economic activity, but having capital 

standards that are too low is very expensive. Just this year, we 

saw three banks go under. This was not a matter of just a liquidity 

problem. These banks were bankrupt, and the proof is the FDIC 

sold them for a negative $30 billion. So, the market looked at their 

assets and liabilities and said they were vastly underwater. The 

cost to our system is not just the $30 billion that will be recovered, 
19 

in effect, from depositors over coming years, but the lack of confidence, particularly in regional and community banks, that are 

still impacting our economy and will for years to come. 

Banks face two types of risks, credit risk and interest rate risk, 

the risk that the borrower won’t pay or the risk that the borrower 

will pay, but at a interest rate that is too low given the economic 

conditions at the time and the bank’s cost of capital. 

In the last war, France relied on fixed fortifications, and we saw 

Blitzkrieg. 2008 was about credit risk, so now, we have Basel III. 

But 2023 was about interest rate risk, and while Mr. Barr says 

Basel III does nothing, he is only mostly right. It does way too little 

with regard to interest rate risk. And there is this myth, and I fear 

Jay Powell buys into it, that if interest rates go up, the banks will 

be fine because, although the loans they have made and their portfolios have declined in value, their depositors will be lazy and stupid and leave the money in low-interest bank accounts. And I don’t 

think that a financial system based on the idea that depositors will 

be lazy and stupid over the long term is a sound basis for regulating banks. 

One thing that needs to be pointed out is that when you focus 

on credit risk, you take money away from local business loans and 

the construction loans that we need to build more apartment buildings because the rents are too high. When you fail to focus on interest rate risk, you incentivize the banks putting their money in 10- 

year Treasuries, and 30-year Treasuries. Apple can borrow all the 

money it needs, so a system that underrates the risk of lending 

money to Apple on a fixed rate, 20- to 30-year basis, and overstates 

the risk of making loans to people building apartment buildings, 

and building small businesses in my district, is a perverse system. 

Now, we do something under Basel III in the available-for-sale 

securities. If they go down in value, that portion of the interest rate 

risk is captured. But what about those that are supposed to be held 

for maturity and what about just the basic loan portfolio that is in 

securities? Basel III is helpful in saying, we are not going to rely 

on the bank’s own internal modeling, but that is only as good as 

the new modeling that the regulator’s come up with, and let’s see 

what they do. 

I am particularly interested, Ms. Philo, in the fact that the risk 

weight capitals on tax equity investments, where the bank buys the 

tax credit from the project developer, will increase from 100 percent to 400 percent for many banks. Tax equity investments can 

help low-income housing. That won’t be affected, but under this 

rule, clean energy tax equity investments would face a four-fold increase under the proposal. 

Ms. Philo, what effect could that have on our ability to meet the 

standards of the Inflation Reduction Act and meet our requirements under climate change treaties? 

Ms. PHILO. I do appreciate where you are coming from. Different 

risks have different weights, and we are relying on the regulators 

in this process to make sure that they align. I think this is one 

area where we may wish to see more of that. And may I say 

that—— 

Mr. SHERMAN. On behalf of polar bears everywhere, yes. I want 

to go on to one other question. 
20 

Mr. Broeksmit, I am told that we are going to have no credit for 

mortgage insurance. Does that make any sense? 

Mr. BROEKSMIT. Nonsense. It makes no sense at all. We should 

encourage banks to use other sources of loss-absorbing capital in 

our marketplace, and this gives no credit for private mortgage insurance. 

Mr. SHERMAN. Thank you. 

Chairman BARR. The gentleman’s time has expired. The gentleman from Texas, Mr. Williams, who is also the Chair of the 

House Small Business Committee, is now recognized. 

Mr. WILLIAMS OF TEXAS. Thank you, Mr. Chairman. As we have 

discussed at length today, the Federal Reserve unveiled the Basel 

III Endgame proposal that changes capital requirements for financial institutions. Multiple regulators, including Fed Chairman Powell, have come before this committee and testified that our banking 

system is already well-capitalized and resilient. This proposal is 

using the bank failures from earlier this year as a weak justification for this partisan rewrite of bank capital regulations without 

considering their impact. These proposed changes will dramatically 

affect the banking community, and there is a legitimate concern 

that Basel revisions will have a broad impact on small businesses’ 

ability to access reliable credit and increase businesses’ overall borrowing costs. Over the past year, we have seen a 2-percent drop in 

large banks’ lending to small businesses. Should regulators move 

forward with the Basel proposal, that number will continue to increase. 

Mr. Baer, could you elaborate on how the Basel III proposal will 

impact bank lending and the cost of credit for borrowers, and what 

does this mean for small businesses trying to obtain a loan? I am 

a small business owner. I managed to inherit. 

Mr. BAER. Sure. Thank you. First, I would say it is already having an effect. If you listen to earnings calls this quarter, you hear 

about banks already, particularly regional banks, talking about 

risk-weighted asset optimization, which means basically shedding 

the assets that have the higher risk weights. There is already a 

credit crunch beginning in this country. One oddity of the proposal 

is, there is basically a 100-percent risk weight for corporate loans. 

There is a possibility of a 65-percent risk weight to the extent that 

the bank’s internal process rates those as investment grade. There 

is then a requirement in the Basel Accord that those also have to 

be listed on a securities exchange in order to get the lower risk 

weight. 

Europe and, I believe the U.K., did not adopt that. Our research 

shows that it is an entirely spurious requirement, that if you look 

at the actual data—and we have a lot of historical data on this— 

internally-rated investment grade loans do just as well, whether 

the company is listed or not. So, there is really no basis for that. 

But more importantly, we also have data through the advanced approaches on what the appropriate risk weight really is, and it is 

more like 38 percent for corporate loans, and closer to 30 percent 

for investment grade. This proposal has us debating between 65 

and 100 percent, but the real answer is probably closer to 35 percent. It is just another example of where there was not data in this 

proposal to justify the risk weights that were agreed to at Basel, 
21 

and another example of where they have taken the Basel Accord 

and implemented it in a way that is uniquely harsh on American 

businesses. 

Mr. WILLIAMS OF TEXAS. Okay. Thank you. The Biden Administration is out of control. Government spending has led to recordhigh inflation, and increased interest rates which have made it extremely hard for Americans to buy a home. Now, under this Administration, U.S. mortgage rates have shot up above 7 percent, 

the highest they have been in 22 years. The Basel III proposal will 

worsen mortgage markets and reduce mortgage availability. Banks 

will be forced to be more cautious when extending credit, making 

the dream of homeownership for many families more and more distant. 

So, Mr. Broeksmit, can you elaborate on the effects that Basel III 

will have on the mortgage market, and will we see heightened consequences in an already-struggling market out there? 

Mr. BROEKSMIT. Yes, we will. And the reason is that if these increased capital requirements go into effect, banks will make fewer 

mortgage loans and/or they will raise the price at which they are 

able to make those loans because they still have to return an appropriate level of return on capital to their shareholders, so there 

will be fewer loans available—less choice at a higher cost. And the 

servicing aspect of this will also raise prices on consumers because 

the mortgage servicing value is an integral part of how every mortgage is priced, not just mortgages made by these banks. 

Mr. WILLIAMS OF TEXAS. My last question is, Federal regulators 

have made U.S. banking standards much more stringent than the 

standards European regulators are imposing on European banks, 

and we have heard this. The U.S. should not be pressured, let 

alone forced by our own regulators to constrain American banks. 

This proposal is creating an unlevel playing field with financial institutions and constraining U.S. G–SIBs. The gap between U.S. 

and European capital levels will continue to grow, and the consequences of these decisions will drive adverse and unwelcome 

challenges to market access and availability of credit. 

So in the time I have left, Mr. Olmem, can you expand on if the 

Basel standards will create a competitive advantage for European 

banks, and what will the effects of the European advantage be on 

the American public and U.S. competitiveness on the world stage? 

Mr. OLMEM. Thank you for the question, and that is certainly 

one of the key questions that is left unanswered by this proposal. 

There is no real discussion of that competitive difference or study. 

I would just note from kind of a geopolitical interest that U.S. 

banks provide a really valuable role in the global financial system, 

and having them be active participants around the globe is good for 

the world’s economy. This proposal does contain a series of charges 

that will make it more costly for them to be active in those markets, and I think that the long-term implications require further 

study. 

Mr. WILLIAMS OF TEXAS. Thank you. I yield back. 

Chairman BARR. The gentleman from New York, Mr. Meeks, who 

is also the ranking member of the House Foreign Affairs Committee, is now recognized. 
22 

Mr. MEEKS. Thank you, Mr. Chairman. Let me pick up somewhat where my colleague just left off. I am very concerned about 

homeownership, and I know from talking to the NAACP and the 

National Urban League that they were very excited about the Special Purpose Credit Programs (SPCPs). 

Mr. Broeksmit, could you provide more background on what the 

Special Purpose Credit Programs are, and will this be affected at 

all by the Basel III Endgame? 

Mr. BROEKSMIT. It is good to see you, Mr. Meeks, and I would 

be happy to elaborate on this. The Special Purpose Credit Programs permit lenders to craft programs that make it easier for 

groups that have historically been disadvantaged in the home buying and home financing process to get loans. They can be based on 

majority-minority areas or they can be based on the characteristics 

of the individual borrower. Many banks have been very innovative 

in using SPCPs to tailor programs geared toward reducing the racial homeownership gap, which in turn reduces the racial wealth 

gap. 

This proposal increases the amount of capital that banks would 

have to retain on loans with less than 20 percent down, very significantly, like, by 40 percent. And that is where my earlier comment came in about for every million dollars in capital that a bank 

allocates to mortgages, they could make $7 million less in mortgages with that amount of capital. So, the availability of those programs will go down and/or the rates will go up. 

Mr. MEEKS. Thank you. And as indicated, I am also the ranking 

member also on the House Foreign Affairs Committee, and I do understand that the intent of the Basel III Endgame was to improve 

the comparability of the capital levels across institutions and jurisdictions, which makes sense to me because I believe in that mission, and I know how important the cross-Atlantic harmonization 

is, especially because of how interconnectedness. And I think that 

is the reason why, in response to some how interconnected European economies are with the United States, whether we like it or 

not, what happens here, affects Europe, and what happens in Europe, affects here, so there needs to be that interconnectedness. 

The goal is harmonization to the degree that it would be possible. 

Now, I am told by some that our nation’s proposed implementation of Basel III goes in a different direction than that of Europe. 

Is that correct, Mr. Baer? 

Mr. BAER. Yes, Congressman, I couldn’t agree more. Again, starting from the place that when the agreement was announced in 

2017, the expectation was that capital wouldn’t go up in this country. It is going to go up 16 percent. Well, no, I guess that wouldn’t 

be starting. The idea on credit risk was to retain internal models 

subject to an output floor or some parameters. This will be the only 

country I am aware of that is eliminating those, and again, the biggest difference is these other nations are not having a stress capital 

charge on top of this to cover many of the same risks. And we also 

in this country still have gold-plated, which is again a political parlance for higher G–SIB surcharges. Although they call it a G–SIB 

surcharge, it is really a capital markets surcharge because that is 

what all the components add up to. 
23 

So, this will be the only country that has not only the higher 

market risk capital in the Basel proposal but also a separate surcharge that covers many of the same risks. We just put out some 

research on this in the last couple of months, and we are deviating 

significantly from what was agreed and how it has been implemented in both Europe and the U.K., and we are deviating every 

time upward. 

Mr. MEEKS. And that affects competitiveness? 

Mr. BAER. It certainly affects competitiveness, not in every 

area—U.S. mortgage lenders don’t compete with French mortgage 

lenders. The competitiveness is more around capital markets. The 

bigger problem is that we are just wrong that our calibration is too 

high. And whether we are competing with a European or a Japanese or a British bank, it just means that U.S. businesses and 

homeowners are going to pay more for credit than they ought to, 

and that more of what has traditionally been a banking business 

will leak out to the non-bank sector, where, again, people will pay 

more and where the government is going to have to intervene more 

frequently because they are not equipped and motivated to continue lending in crisis. That is the real concern. 

Mr. MEEKS. Okay. I only have 15 seconds left, so no one could 

answer my question. But I will just say I have concerns also to see 

whether or not the Basel III Endgame would affect money going to 

Minority Depository Institutions (MDIs) and Community Development Financial Institutions (CDFIs), another issue which is very 

important to me. I am out of time, so I yield back. 

Chairman BARR. Thank you, Mr. Meeks. The gentleman from 

Tennessee, Mr. Rose, is now recognized. 

Mr. ROSE. Thank you, Chairman Barr, and thank you to our witnesses for taking the time to be with us today. 

Mr. Olmem, the Basel proposal is expected to increase the riskweighted assets for banks’ capital markets activities by 75 percent, 

meaning that banks will have a significantly higher capital charge 

for critical capital markets activities that they conduct. One such 

activity that could be adversely impacted, in my opinion, is 

securitization. Do you have any concerns that Basel could negatively impact securitization in our economy and our capital markets? 

Mr. OLMEM. Yes, thank you for that question. That is a particular area actually where the U.S. proposals differ significantly 

from the European, and there is not a factual foundation to understand why the calculations involved there have changed. I would 

also just note generally about the economic analysis around the 

capital risk is that in the proposal itself, it says that the impact 

on liquidity of the proposal is an area that requires further research. That is the extent of the economic analysis that is contained in the proposal. 

Mr. ROSE. Thank you. I appreciate that. And, Mr. Olmem, Federal Reserve Governor Michelle Bowman has expressed concerns 

about the rolling back of regulatory tailoring provisions in the proposed rule, stating that, ‘‘Collapsing capital categories II, III, and 

IV into a single prudential category may call into question whether 

the Federal Reserve is complying with the statutory requirements 

to tailor prudential requirements for large firms.’’ Are you worried 
24 

that the lack of tailoring will drive consolidation among regional 

banks to achieve the scale needed for compliance? 

Mr. OLMEM. I think this is a serious issue, again, that has not 

been addressed, and it is a common-sense question that one would 

ask when one would put together a proposal like this. But again, 

there is no thorough analysis of that issue in the proposal. 

Mr. ROSE. I agree. And, Mr. Olmem, do you feel that the lack of 

differentiation in capital rules across such a wide range of banks 

is appropriate? 

Mr. OLMEM. Yes. And more importantly, this institution has 

passed, again, in 2 separate bills over the last 13 years, legislation 

saying that tailoring is important. And that is what is so striking 

to see, an independent agency whose charge is not to create, but 

to implement the policy that this institution and this committee devises. Instead, here you have a clear example of where the institution is disregarding a clear directive from Congress. 

Mr. ROSE. Thank you. Mr. Broeksmit, home affordability is such 

a present problem due to various decisions, in my opinion, by this 

Administration. This new proposal seems like it would make it 

even more difficult to purchase a home, particularly for first-time 

homebuyers and borrowers who haven’t yet saved up 20 percent for 

a down payment and are trying to get a conventional loan. Do you 

think this proposal will make home affordability worse, and if so, 

how? 

Mr. BROEKSMIT. Thank you, Representative Rose, and thank you 

for your leadership on the trigger lead issue, which we appreciate 

very much. Yes, as I have mentioned before, I do think that this 

will make mortgages even less affordable at a time when mortgage 

rates are at a generational high and when the supply of homes is 

very low, and, therefore, home prices keep on marching upward, so 

it is exactly the wrong time to do this. And there is no evidence 

that the additional capital requirements in this proposal have anything to do with the underlying risk of the loans themselves. And 

that is what the regulator should be focused on, and there is no 

evidence at all that they have done that. 

Mr. ROSE. And what do you say to the regulators to fix these unforeseen albeit obvious downstream issues from this proposal? 

Mr. BROEKSMIT. The Basel III standards, which vary by loan-tovalue, meaning that you are allowed to hold less capital against a 

loan where the borrower made a higher down payment, are sensible. The additional 20 percentage points that the regulators are 

putting on top of them are nonsensical, so on the mortgage side, 

if you simply went with the Basel III rules, you would have a much 

better result. 

Mr. ROSE. And, Mr. Baer, it will take all the time, but I will let 

you answer this for the record. The Basel III Endgame proposal 

seems as if it could negatively impact the housing market in an already difficult time, and, frankly, make commercial banking’s incentive to stay in residential lending even less desirable. If your 

members start shrinking their residential lending businesses, what 

does that do to this housing market and to the GSEs? And I am 

sorry, we are out of time, so I will have to let you answer that in 

writing for the record. I yield back. 
25 

Chairman BARR. The time has expired. The gentleman can answer that for the record. 

The gentleman from Georgia, Mr. Scott, is now recognized. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Mr. Baer, let me start with you. You will recall that prior to the 

2008 financial crisis, our nation’s largest banks were overly relying 

on their own models for credit risk, and these models failed to predict the magnitude of credit losses during the collapse. And this is 

why our Financial Services Committee put strong capital requirements into Dodd-Frank to strengthen the banking industry’s ability 

to withstand stresses and shocks. 

Since then, our banking system has successfully navigated very 

difficult periods, including the recent 2020 COVID economic shock. 

But now, I am very concerned with the unintended economic consequences of this proposed rule and its potential impact on our 

banking institutions as they engage in critical market activities. 

And there was considerable dissent and opposition for releasing the 

notice of rulemaking, including from Fed Chair Powell himself. 

On June 17th, Chairman Powell raised concerns that the costs 

of higher capital could diminish banks’ roles as financial intermediaries and liquidity providers in critical markets. Chairman 

Powell voiced concerns with the scope of the proposal. He said, ‘‘exceeding what is required by Basel, while also exceeding what we 

know of our plans for the implementation by other large jurisdictions,’’ and he specifically referenced the EU and the U.K., and 

Chairman Powell went on to note that, ‘‘The need to strengthen supervision for firms with assets between $100 billion and $260 billion by tailoring these rules to reflect the size and risk of these institutions.’’ 

This proposed rule eliminates tailoring rules under Section 165 

of Dodd-Frank, which requires that the Federal Reserve, ‘‘shall differentiate among companies on an individual basis or by category.’’ 

My question to you, Mr. Baer, is why is it important to consider 

things like risks and size and business models and complexities of 

individual institutions, and what do you have to say in reference 

to my good friend, Chairman Powell’s, opposition to this rule? 

Mr. BAER. It is a great question, and I appreciate it. I am not 

sure he opposed it. I would characterize it as expressing misgivings, but he can speak for himself on that. You can think about 

the proposal as a whole or in parts. As a whole, it is raising capital 

requirements by 16 percent and effectively finding that every large 

bank in this country is undercapitalized, and there is no evidence 

for that. At the component levels, it also raises individual concerns, 

which I think the Chair and other Governors raised, like, why are 

we raising market risk capital by 75 percent when that is an 

area—again, completely away from Silicon Valley Bank—where 

banks are continuing to lower risk and still earn good returns? 

We have not talked at all about operational risk. If this thing 

was implemented, 30 percent of the risk-weighted assets held by 

banks would be operational risk assets. Those are phantom assets. 

They are not assets; they are just assets created to produce a capital charge. They are supposed to be about cyber attacks, but they 

are really about litigation judgments. But the notion that 30 percent of the capital being held by U.S. banks would be for a future 
26 

fine that one of these same regulators might impose upon them 

seems distinctly odd, particularly when you realize how much that 

is going to cost borrowers. So right now, you pay a judgment that 

costs your shareholders, but in the future, it is going to cost all 

your customers because you are going to have to capitalize that. 

Mr. SCOTT. Thank you. 

Mr. BAER. It’s wildly disproportionate. That is true for all banks. 

But certainly, for the regional banks, they are really in a tough 

fight right now. They do not need this layer of burden on top of 

the other challenges they are facing. 

Chairman BARR. The gentleman’s time has expired. 

Mr. SCOTT. Thank you very much. 

Chairman BARR. I would let you go a little longer because that 

was good testimony. The gentleman from South Carolina, Mr. 

Timmons, is now recognized. 

Mr. TIMMONS. Thank you, Mr. Chairman, and I want to thank 

all of the witnesses for being here today. I feel like we are watching 

the same show over and over again but somehow expect it to end 

differently. Everyone wants a prosperous economy. I think we can 

all agree to that. We want it to be stable, and we want to be wellprepared to navigate the inevitably turbulent waters. They are 

well-intentioned policies, but they have no basis in the real world, 

and ultimately do more harm than good, and it happens again and 

again. This happened pre-2008, again in 2023 with Silicon Valley 

Bank and Signature Bank, and here we are again pushing overly 

burdensome reforms that will again do more harm than good. 

We are going to highlight the last three examples. Let’s go back 

to pre-2008. Democrats strongly encouraged banks to loan money 

to people regardless of their credit scores or ability to repay those 

loans. Doing so would be allegedly discriminatory. The Financial 

Crisis Inquiry Commission, which was appointed by Congress to 

determine the causes of the subprime mortgage crisis, found that 

Federal housing policy either was primarily the cause of or, at the 

very least, was a substantial contributing factor to the crisis. 

Mr. Olmem, you were on the Hill during that time. Would you 

agree that Federal housing policy was a substantial contributing 

factor to that housing crisis? 

Mr. OLMEM. Yes, and I think all studies back up that conclusion. 

Mr. TIMMONS. Okay. And this resulted in millions of Americans 

suffering severe hardship. People lost their jobs. People lost their 

houses. They couldn’t buy houses they had been planning to buy. 

Let’s go to Silicon Valley Bank and Signature Bank. Mr. Olmem, 

do you agree that Congress spending $7 trillion resulted in inflation, which then resulted in an increase in interest rates? 

Mr. OLMEM. That’s a little bit outside my area of expertise, but 

I think most economists would say that it had something to do with 

it. 

Mr. TIMMONS. Okay. And I just want to point out that if you 

were saving up for a $300,000 house in my district, you were expecting to pay around $1,100 or $1,200 a month in a mortgage payment. Now, because of interest rates going up, because my colleagues across the aisle spent $5 trillion ostensibly because of 

COVID, that same mortgage is about $2,400 or $2,500 a month. So, 
27 

they have essentially denied the dream of homeownership to the 

very people that they are allegedly trying to help. 

And here we are now discussing proposals to harden the economy, to make it more capable of overcoming turbulent economic 

waters to solve a problem that was created by policies in Washington. They spent trillions of dollars, they caused inflation to go 

up, interest rates rose, and Silicon Valley Bank and Signature 

Bank failed. 

Mr. Olmem, would you agree that but for interest rates more 

than doubling, would Silicon Valley Bank and Signature Bank have 

failed? 

Mr. OLMEM. It is always difficult to do the counterfactual, but it 

is clear that the sharp increase in interest rates was a driving factor in the failure of those institutions—— 

Mr. TIMMONS. They grew too fast, and they had to park some 

money somewhere, and they parked it somewhere that didn’t work 

because they got upside down with their Treasuries. So now, they 

are proposing structural changes to harden the financial system of 

the United States because the policies that we pushed out—I keep 

saying, ‘‘we’’, but I was against all of these—that they pushed out 

caused the problem, so now they are going to solve it. So, policies 

that were pushed out by Democrats created the problem, and we 

need to have these new policies that will further impede Americans’ ability to get mortgages, and will further impede the economy’s ability to grow. 

Mr. Olmem, do you agree that if all of Basel III is actually fully 

implemented, it will be harder for Americans to get a loan, or will 

it be easier? 

Mr. OLMEM. First of all, that is one of the reasons why this process is so problematic is we don’t really know, and the agencies are 

moving forward in an uninformed manner. They have not gone off 

and done that data to answer those basic questions. Now, I think 

you have heard from the testimony today, based on what we do 

know, that the high probability is yes. 

Mr. TIMMONS. I think we have seen this show again and again, 

and before the Democrats spent trillions of dollars, President 

Obama’s Treasury Secretary, Larry Summers, said, ‘‘This is going 

to cause inflation.’’ And here we are today saying that these proposed changes to our financial system will make it harder for 

Americans to get mortgages, will make it harder for the U.S. economy to grow, and we need to stop causing problems. The Federal 

Government needs to get out of the way. 

With that, Mr. Chairman, I yield back. 

Chairman BARR. The gentleman yields back. The gentleman from 

Illinois, Mr. Casten, is now recognized. 

Mr. CASTEN. Thank you, Mr. Chairman. I would like to follow up 

in a little more detail on the comments Mr. Sherman raised about 

tax equity markets, and I know it is familiar for some of my colleagues. This is where somebody who does something that entitles 

them to Federal tax incentives but doesn’t have taxable income, 

finds a partner, typically a bank, who has taxable income, and they 

essentially buy the tax credit by buying a minority of the equity 

in the project in exchange for the preponderance of the tax attributes. 
28 

Under the current rules, bank capital that is spent on tax equity 

only has a 100-percent risk weighting unless it is more than 10 

percent of bank capital, at which point it takes on a 400-percent 

risk weighting. The proposed rules in Basel would essentially take 

off the 10-percent cap, oddly and perhaps accidentally, except for 

tax equity on low-income housing. I want to park that for a moment. But what that means practically, particularly in light of the 

Inflation Reduction Act, which was primarily a tax incentive bill, 

is that here we have this huge investment, tons of investments of 

private capital, and every bank in this space is going to see a 400- 

percent increase in their capital requirements if they are providing 

tax equity. 

Mr. Baer, I see you nodding your head on this, so let me start 

with you. But first, Mr. Chairman, I would like unanimous consent 

to introduce a letter from the American Council on Renewable Energy, dated August 22nd, to the White House, into the record. 

Chairman BARR. Without objection, it is so ordered. 

Mr. CASTEN. This letter says that annual tax equity investments 

in the clean energy sector could shrink by 80 percent to 90 percent, 

and many banks could exit the renewable tax equity market entirely if this is implemented. 

Mr. Baer, do you agree with that statement? What are you seeing from your members as far as these tax equity consequences? 

Mr. BAER. Thanks. First, I will just say that was a better summary of the issue than I could have done, so I am glad you did it 

for me. No, we have talked to banks. They would absolutely exit 

this market if their risk weight went from 100 to 400 percent, and 

the problem is even broader, which is we don’t know why they decided to go from 100 to 400 percent. They obviously left it at 100 

percent for low-income housing tax credits, okay, but why not 

these? Why not others? 

Mr. CASTEN. Let me stay on that because you are anticipating 

my next question. I don’t understand that logic. Let’s first just back 

up. Do you believe that the risk profile of bank capital that is in 

tax equity investments for low-income housing tax equity is substantially different than the risk profile for other bank capital that 

is in tax equity investments? 

Mr. BAER. Yes, our understanding is that the loss experience, 

which, again, is what should drive capital rules, not the political 

favorability of the loss experience, with both of these has been very 

good and does not justify a 400-percent risk weight, which is 4 

times what you would have for basically a corporate loan. So, I 

don’t believe that there is evidence that the loss rates on this are 

higher than any corporate loan you would make. 

Mr. CASTEN. Okay. 

Mr. BAER. Certainly, there is nothing in the proposal which demonstrates that. 

Mr. CASTEN. Yes. In Basel III, I think they refer to the low-income housing investments as community development investments, 

not subject to the 400-percent tax. 

Mr. BAER. Correct. 

Mr. CASTEN. Would you have any objection to just saying, well, 

let’s just say that these tax equity investments in renewable energy 
29 

are also community development investments? They preponderantly do help local communities after all. 

Mr. BAER. What I would say is that the Basel agreement is not 

a treaty that the Senate ratified or that this Congress passed as 

a law, so you can do whatever you want. You don’t need to sidestep 

the vernacular of the Basel Accord. You can do whatever you think 

is the right thing to do based on the risk and the cost. 

Mr. CASTEN. Yes, I am inclined to agree, and I am just speculating. I am not sure this wasn’t an oversight on their part. The 

U.S does some weird things to incentivize behaviors through the 

Tax Code that other governments don’t do, and I could forgive European regulators for not necessarily appreciating all this, but I 

would hope that we can fix this in some other fashion. 

I hope maybe some of our colleagues could work with us because 

we did really pass the biggest clean energy bill ever passed by any 

government in history anywhere. We are really seeing these huge 

investments coming in. We do really have to leave a better planet 

for our children than the one we inherited from our parents. We 

have the tools to do it, and we shouldn’t handicap it because of 

what, I agree with you, is no difference in the fundamental risk. 

And to be clear, I think it is important for our banks to be wellcapitalized, but on this narrow point, if we agree that the risk profile isn’t different, then let’s not cut off our nose to spite our face. 

Thank you all, and I am out of time. I yield back. 

Chairman BARR. The gentleman yields back. The gentlewoman 

from California, Mrs. Kim, is now recognized. 

Mrs. KIM. Thank you, Mr. Chairman. We are all in agreement 

that Silicon Valley Bank’s collapse was largely due to the failure 

of its leadership to manage the historical rate hike not seen in a 

couple of decades. And on top of the bank’s mismanagement, the 

Fed’s own review blames its supervisors for failing to act in a timely manner, and in my home State of California, we are still dealing 

with the ripple effects of the Silicon Valley Bank failure. So instead 

of venturing into new capital requirements that will increase financing costs for small businesses and first-time homebuyers, Federal financial regulators should follow their own reports and address their mishaps and supervisory breakdowns. 

Mr. Baer, Silicon Valley Bank purchased long-term debt to the 

point where it had breached its interest rate risk limits on and off 

since 2017. In your point of view, who is responsible for allowing 

the limit breach to happen, and who bears the responsibility for 

giving Silicon Valley Bank a break for breaching these limits? 

Mr. BAER. Sure. Thank you. It is an important question. Clearly, 

the primary responsibility lies with the management of the bank, 

and secondary, I think, would be the examiners who tolerated the 

breaches. 

Mrs. KIM. Would you say it is the San Francisco Fed? 

Mr. BAER. Yes, I believe that is correct. 

Mrs. KIM. Yes. Do you know if the San Francisco Fed was the 

only Reserve Bank allowing their member banks to purchase longterm T-bills? 

Mr. BAER. It was more the duration than the nature of the instrument. So if you think about what was really happening, it was 

a perfect storm in the sense that all banks around the country, as 
30 

a result of COVID and stimulus programs, got in massive amounts 

of deposits. Usually, when you are getting in lots of deposits, you 

are also having a lot of loan demand, so you take those deposits, 

and you make loans. There was no loan demand, again because of 

a lot of programs and the state of the economy, so they had tons 

of deposits, and they needed to put them somewhere, so they 

bought securities. 

The smarter banks, most of the banks, the banks really probably 

in all the other Reserve districts said, well, you know what? We are 

going to buy securities, but we are going to buy short-dated instruments because interest rates could rise, right? And a lot of the 

banks, and I talked to them, when they had their earnings calls, 

they got grief from analysts, investors, saying, why are you earning 

such a low yield? And what they responded responsibly was, I am 

managing my interest rate risk and I want to keep my duration 

short because rates could rise. 

Silicon Valley Bank and some other banks, not many, took a very 

different tack and they said, no, we are going to stretch for the 

yield. We are going to buy longer-dated instruments, and that is 

what ended up dooming them when there was a run. Again, if 

there had not been a run, they would never have had to realize the 

unrealized losses, but there was, and there was not a good way to 

monetize those securities. 

Mrs. KIM. Simply put, Silicon Valley Bank’s collapse is being 

used as a red herring to increase capital requirements. Federal financial regulators have the tools, but they decided not to use them. 

According to a recent 10,000 Small Businesses survey, 70 percent 

of small businesses reported it was difficult to access capital. 

I want to ask you another question, Mr. Baer. Several groups 

wrote a letter to the Fed, the OCC, and the FDIC asking these 

three agencies to delay the Community Reinvestment Act (CRA) 

rules until after the capital rules are finalized. So, if Federal agencies proceed with their timelines, can you describe how these layers 

of new regulations could impact access to capital for small businesses and financing for consumers? 

Mr. BAER. I think this is a classic example of what a holistic review would look like in the sense that the CRA proposal is in some 

ways similar to this in that it is incredibly detailed and effectively 

a form of credit allocation, but it assumes where banks will make 

certain investments and how easy those investments are to make. 

Of course, that is now driven by a subsequent proposal on capital 

of over 1,000 pages, and I will confess, we have not even mapped 

out this CRA credit for this, how reasonable a business is that to 

be in now. I think a lot of this would be in the mortgage market. 

So for certain types of loans, is CRA incentivizing something that 

the Basel proposal is disincentivizing? I don’t know yet, but I would 

love a chance to think about it and then comment on the CRA 

thing—— 

Mrs. KIM. Let’s move on, because I know my time is coming to 

an end quickly. But I also want to echo the comments that we 

heard from my colleagues about the proposal that will make it even 

harder for lenders to offer loans to buyers who do not put down the 

20-percent down payment. We are talking about low-income families, veterans, as much of the Americans of all different back-
31 

grounds to buy a home to live their American Dream. So, can you 

talk about what type of homeowners will be pushed out of the market? 

Mr. BROEKSMIT. Yes, I agree with you that first-time homebuyers 

who do not have generational wealth and don’t have the ability to 

make a 20-percent down payment, will be affected most by this. 

And that is the very area where banks are being creative in loans 

on their balance sheet, and they should be encouraged instead of 

having massive surcharges to the capital they have to allocate on 

those loans. 

Mrs. KIM. Thank you. 

Chairman BARR. The gentlelady’s time has expired. The gentlewoman from Massachusetts, Ms. Pressley, is now recognized. 

Ms. PRESSLEY. Thank you. Earlier this year, we witnessed three 

of the largest bank failures in U.S. history, a direct consequence of 

Republican deregulation in 2018, which weakened bank regulations 

by exempting banks like Silicon Valley Bank from enhanced stress 

testing and stringent capital requirements. As has been proven, the 

Republicans’ opposition to regulation comes at the expense of economic stability for working families. And now, they are doubling 

down on their prior mistakes, despite the harm that we saw just 

a few months ago ripple across our economy, especially in my district, the Massachusetts 7th. 

When Silicon Valley Bank collapsed, small businesses in my district couldn’t accept payments, affordable housing development was 

slowed, it was suddenly in jeopardy, and tech companies couldn’t 

make payroll. 

Ms. Philo, when banks lack sufficient capital, who bears the 

brunt of the cost when there is a financial crisis? 

Ms. PHILO. Thank you very much, Congresswoman Pressley. Research shows that financial crises are extremely costly and have a 

disproportionate impact on Black and Brown communities, Black 

and Latinx communities and businesses, and rural and other underserved communities. The 2008 crisis cost $2.6 trillion, and the 

set of capital reforms in these proposals are really essential to prevent that large-scale boom and bust of financial cycles that we 

found ourselves historically and that hurt all Americans and businesses, but disproportionately reduced the wealth and the access to 

credit for communities of color, rural, and other underserved communities and businesses. Thank you. 

Ms. PRESSLEY. No, thank you. And adding insult to injury, and 

we have seen this happen time and time again, Silicon Valley 

Bank’s CEO was paid millions of dollars, ostensibly for being incompetent, and rewarded for the harm that they caused. And every 

time banking regulators try to increase capital requirements, we 

hear this misleading corporate rhetoric like that of Jamie Dimon, 

who said that these proposed capital requirements are bad for 

America. And I am really quite tired of it, so let’s set the record 

straight here today. 

Ms. Philo, isn’t it true that better-capitalized banks are able to 

lend more even during periods of stress? 

Ms. PHILO. Thank you very much. Yes, a bank can use capital 

to make more loans. Many bank executives and the bank lobby 

claim that increased capital requirements will undermine credit 
32 

availability. We strongly disagree that increased capital requirements will undermine credit availability. Indeed, well-capitalized 

and secure banks are essential to providing credit to businesses, 

families, and communities. 

A 2020 World Bank report summarized several studies which 

found that well-capitalized banks in the U.S. had higher loan 

growth than nearby banks with fewer capital reserves, that wellcapitalized, large U.S. banks had higher loan originations and liquidity, and that better-capitalized international banks had lower 

funding costs that enabled them to increase lending. I recognize 

there are studies that say a lot of different things, but I found this 

to be credible, and I appreciate the time. 

Ms. PRESSLEY. And similarly, some banks believe that this rule 

will slow down the U.S. economy, but do you believe that this will 

be the case given that implementation will be gradual and occur 

over years? 

Ms. PHILO. I have recognized the question, and yet I do believe 

that these proposals will not slow down the economy. The proposals 

make the long implementation and the gradual phase-in explicit, 

and I believe that is the intention there to mitigate those impacts. 

So, I do not believe that that will be an overarching issue. 

Ms. PRESSLEY. Thank you. The benefits of higher capital requirements are clear. They will enhance bank resilience and secure 

more stable lending in our economy. We have seen three bank failures this year, and this rule is necessary to strengthen our financial system so that it can weather future crises. The American people are paying close attention. Republicans continue to oppose common-sense regulations in our banking industry. We know who will 

suffer and we know exactly whom to hold accountable. Thank you. 

I yield back. 

Mr. FITZGERALD. [presiding]. The gentlelady yields back. Chairman Barr has allowed me to sit in as Chair briefly, so I am going 

to recognize myself for 5 minutes. 

Thank you all for being here today. The interagency proposed 

rule for implementation of the Basel III regulatory framework 

would add up to 20 percentage points to internationally agreedupon Basel III risk weights for mortgages. I don’t want to be redundant; I know that we have kind of explored this area many 

times this morning. 

I was fortunate enough on the break that we just had to meet 

with Wisconsin REALTORS and Wisconsin bankers back to back in 

some roundtables, and I thought the conversation was actually fascinating. There is obviously an issue that has emerged in this economy, which is, adults 25- to 35-years-old have been completely frozen out of the market for the most part, and some of this came 

from feedback we were getting from some of the REALTORS. Some 

of them also happen to be mortgage brokers. 

I was wondering, first of all, Mr. Broeksmit, can you talk a little 

bit about this issue related to credit scores for consumers and this 

whole group of adults in that age range who have no credit score, 

which is what we are being told at this point, or if they end up 

being in a situation where they are a married couple, where one 

may have a credit score and the other one doesn’t, so they are making changes and going through all these gyrations to try and put 
33 

themselves in a place where they could qualify for a mortgage so 

they are first-time homebuyers? 

Mr. BROEKSMIT. One of the things about credit scoring that is 

frustrating is that most credit scores don’t give credit for your rental payment history. There is nothing more predictive of your future 

ability to make a housing payment than how you are paying it 

today, whether it is an apartment or whether it is a home. So, 

there are efforts underway to get landlords to report that payment 

history to the credit bureaus, and there are also workarounds, although they are cumbersome, as I am sure your constituents told 

you, so that you can get credit for that rental experience. For instance, if you can get 12 monthly bank statements and it shows 

that amount going out about the same time every month, that is 

a big consideration in underwriting. So, there are some steps underway to ameliorate that for credit scoring. 

Mr. FITZGERALD. Yes. Also related to small business, as they continue to see credit lines, there are these unused portions of credit 

that are out there. And some banks right now have this discretion 

to simply cancel those credit lines and then try and reissue. I am 

wondering if you wanted to comment on that because it is kind of 

a confusing part of, once again, what most small businesses in 

America are looking at as they try and capitalize some of these new 

projects or purchases. 

Mr. BROEKSMIT. If I understand this voluminous proposal correctly, banks would be required to hold capital on the maximum 

amount that could be drawn rather than the amount that is outstanding. That could have a really chilling effect on the sort of 

small business credit you mentioned, and also home equity lines of 

credit, where consumers take that out and use it as they need it 

because they only pay interest if they use it. And then, if the banks 

are forced to hold capital against the whole line, it would make it 

much more expensive. 

Mr. FITZGERALD. Yes. Approximately 70 percent of small businesses right now in America are saying they are having a very difficult time accessing credit, which is up considerably from where it 

was even a year ago. What effect do you think it would have on 

the FICO scores for small business owners as well, which I know 

is part of the mix right now as you talk to many of the banks kind 

of across the country? 

Mr. BROEKSMIT. I think the main effect is that the cost would go 

up and the availability would diminish. If the business owner or 

the consumer makes timely payments on that credit, I think the 

credit score will be okay. It is really more a question of the availability and the cost. 

Mr. FITZGERALD. Yes. 

Mr. Baer, you talked about the credit crunch, I think is the way 

you described it before. If you see some of the banks kind of tighten 

up on not only the credit scores and the way they are evaluated, 

but if, in fact, they have to add more capital, which most of them 

and everyone that I have spoken to has said it is absolutely ridiculous that they would have to add capital at this point, it would 

make it much more difficult, which is kind of what I am hearing 

here this morning being reported back from the witnesses. Do you 

think that there would be a breaking point at which we see either 
34 

changes in inventory when it comes to single-family homes or small 

businesses that are starting to either relocate or are unable to expand after the pandemic that had such a devastating effect? What 

do you see kind of across-the-board as to what that landscape 

would look like? 

Mr. BAER. Sure. It is obviously complex, but basically, if your required capital ratio goes up, you have a choice. You can increase 

the numerator, raise capital, retain earnings, or you can decrease 

the denominator, and that means getting out of the types of loans 

that are attracting the highest risk weights or the types of assets, 

and a lot of that are loans and particularly small business loans. 

Mr. FITZGERALD. Very good. Thank you. I yield back. Next, we 

are going to recognize Mr. Green from Texas for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. And I thank the ranking 

member, and I thank the witnesses for appearing today. I would 

like to further introduce the witnesses by way of observation. It appears to me that we have but one female on this panel of witnesses. If you are a female, would you kindly extend your hand so 

that I may validate? 

[Hand raised.] 

Mr. GREEN. Only one hand. Thank you. My vision is good. That 

appears to be Ms. Philo. Is that correct, ma’am? 

Ms. PHILO. Yes, sir. 

Mr. GREEN. My observation also indicates to me that all of the 

persons appear to be what I would call Anglo, we commonly in this 

country refer to people as White. I really don’t like the term, to be 

quite honest, but if you have documented yourself, perhaps on the 

Census, as something other than White, would you extend a hand 

into the air? 

[No response.] 

Mr. GREEN. Let the record reflect that we have none of the persons who have documented themselves as someone other than a 

White person. I am doing this, friends, because I happen to believe 

that there are people of color who can do what you do, but I could 

be wrong. 

So let me pick on you, Mr. Olmem. You have a storied career, 

by the way. I compliment you, sir, and your firm has done an outstanding job. I see that on November 17, 2022, 53 lawyers made 

partner and counsel. And of that 53—this is fantastic—55 percent 

of those promoted were female. That is fantastic. Your firm is doing 

a great job. I compliment you. Let the world know that I have said 

it. 

Mr. OLMEM. Thank you. 

Mr. GREEN. And the greatest number of promotions were in 

banking and finance. Outstanding, and I have one other comment 

about you. I am just absolutely impressed with your credentials. 

One other comment. The American Lawyer named you as one of 

their 2021 trailblazers, recognizing individuals who are agents of 

change in the legal industry. Agent of change, a trailblazer. Are 

there women of color who can do what you do, sir? 

Mr. OLMEM. Certainly. 

Mr. GREEN. And are there women of color who can do what you 

do—my vision is not as good as I would like for it to be—but, Mr. 

Baer? 
35 

Mr. BAER. Yes, I would agree, Congressman. 

Mr. GREEN. And our final witness, would you agree that there 

are women of color who can do this? 

Mr. BROEKSMIT. I would, and, in fact, the immediate past Chair 

of the Mortgage Bankers Association was just such a woman of 

color and she did a great job. 

Mr. GREEN. Thank you. I want to compliment all of you, but I 

must tell you I am a little bit disappointed that we have not arrived. We are not there yet because for some reason, there are no 

people of color on this panel, and it is not your fault, so please, it 

is not personal as it relates to you. There has to be someone who 

will point these things out. If no one points them out, 50 years 

from now, we will still have panels that are all White with no people of color. It appears that on my watch, I am that person. 

I would ask this: Do you think that we should continue to have 

all-White panels in a country where we have other persons who are 

capable, competent, and qualified, and happen to be of color? If you 

think so, extend your hand. I will make it easy for you, extend your 

hand. 

[No response.] 

Mr. GREEN. Let the record reflect that no hands have gone up. 

By the way, it was the Democrats that produced the one person 

who happens to be a female, so I compliment my Democratic colleagues and my Democratic ranking member for doing this. It is a 

bit late for you to answer this question, but, Ms. Philo, I would 

have asked you, and perhaps you will answer for the record, about 

this internal modeling that takes place. And I want you to please 

explain for the record how this complicates—— 

Mr. FITZGERALD. The gentlemen’s time has expired. I will allow 

the witness to answer the question. 

Mr. GREEN. No, I am asking her for the record how this complicates the job of those who have to monitor banking. 

And, Mr. Chairman, I would like to put in the record the article 

that I referenced related to Mr. Olmem’s law firm, Mayer Brown, 

which has an outstanding record. I thank you, and I yield back. 

Mr. FITZGERALD. Without objection, it is so ordered. 

And the gentleman’s time has expired. We now recognize the 

gentleman from Georgia, Mr. Loudermilk, for 5 minutes. 

Mr. LOUDERMILK. Thank you, Mr. Chairman. Thank you all for 

being here. I am here batting at the bottom of the order, partially 

because I have been spending about the last 50 minutes with constituents from Georgia, one of our largest counties’ chambers of 

commerce. And interestingly enough, there was a lot of discussion 

regarding this matter right here and a lot of concern about the U.S. 

and the government in general, especially the financial services 

sector, adopting international standards versus those that are designed and catered directly toward the U.S. industry. 

But I appreciate you all being here today. And in addition to the 

multitude of procedural material and sovereignty concerns that my 

colleagues and I have raised in letters, hearings, and discussions 

with regulators, I want to make it clear to the public that the Basel 

III proposed rule isn’t some obscure regulation that only affects big 

banks. My colleagues and I are concerned that the 1,087-page 
36 

Basel III proposed rule could tangibly increase the cost of capital, 

affecting businesses and homeowners nationwide. 

You have mostly answered a lot of the major concerns that I had, 

so I am not going to go through a lot of those, especially when it 

affects the mortgages and mortgage servicing rights (MSRs). 

Mr. Broeksmit, just kind of encapsulating everything based on 

the answers you have given to several of these questions, do you 

agree that borrowers would notice the effects of the Basel III NPRs 

treatment of MSRs? 

Mr. BROEKSMIT. I do, and, in fact, in 2011, just before the Basel 

agreements were put into place, banks serviced 91 percent of home 

mortgages. They now service 47 percent. If you make it even less 

attractive, they will service less. 

Mr. LOUDERMILK. What will be the alternative? Is it just, we 

would see an impact in the real estate market? Are there alternative places to borrow money? 

Mr. BROEKSMIT. To be clear, there are plenty of other good players who service mortgages, and independent mortgage bankers do 

a great job servicing loans. But from the consumer’s perspective, 

the more sources of demand and sources of capital for mortgage 

servicing, the more valuable the asset. The more valuable the 

asset, the lower the mortgage rate, because the servicing value is 

an integral part of mortgage pricing. 

Mr. LOUDERMILK. It sounds like maybe competition tends to 

lower costs and prices. 

Mr. BROEKSMIT. Competition and choices for consumers, yes. 

Mr. LOUDERMILK. Exactly. I have shared with other people that 

back when I served in the Air Force and the military, I was involved in intelligence, and the Soviet Union was our adversary. 

And one defector during that time ended up coming to the United 

States, someone from the Soviet military. And at the first grocery 

store in the U.S. he went to, he was so amazed with the selection 

and the choices he had that he thought it was a setup by the CIA, 

and he said, ‘‘Who needs 12 different types of raisin bran?’’ And so 

again, choice is a part of our economy. 

Last question for you on this: Does the proposed rule contemplate the consumer confusion this would cause anywhere in the 

1,087 pages? Have they addressed the confusion that this would 

bring? 

Mr. BROEKSMIT. In addition to all of the other things they have 

not addressed to justify this rule, that is one of them. 

Mr. LOUDERMILK. Okay. Thank you for that. 

Turning to Mr. Olmem, was there broad consensus among the 

regulators on the NPR? 

Mr. OLMEM. No, there wasn’t. In fact, there was, I think, a 

record number of dissents at the Board for a proposal, at least in 

recent memory, and there were two dissents at the FDIC. 

Mr. LOUDERMILK. Okay. And this is probably the last question I 

have time for: What should Congress take away from the reservations that several key banking regulators have expressed with the 

NPR? What should our reaction be? What should we do? 

Mr. OLMEM. That there needs to be significantly more congressional oversight and involvement in this process, and to remember 

that policy on capital regulation is really set here at Congress, and 
37 

Congress needs to make sure that the regulators are following 

what Congress has already set out in the Federal law. 

Mr. LOUDERMILK. Do you see this as being partisan, given that 

even people within this Administration have expressed concerns? 

Mr. OLMEM. It shouldn’t be. Historically, capital regulation, if 

you go back, those statutes, for the most part, with kind of DoddFrank being the one exception, have been passed with significant 

bipartisan majorities. So it shouldn’t be, and that is the danger. 

Mr. LOUDERMILK. Okay. Thank you, Mr. Chairman. With that, I 

yield back the 1 second that I had left. 

Mr. FITZGERALD. The gentleman yields back. I would like to 

thank our witnesses for their testimony today. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

This hearing is now adjourned. 

[Whereupon, at 12:02 p.m., the hearing was adjourned.] 

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