Secretary Yellen Dodges Basel Endgame Questioning

Feb 06, 2024
Economy
Press
Washington, DC – Today, Congressman Lucas followed up with Secretary Yellen on whether Treasury has discussed the impact of the Basel Endgame proposal with the Federal Reserve. When asked a straightforward question on the detrimental impact of the proposal, Secretary Yellen had no answer.

February 6, 2024 
Lucas: “Are you concerned that the proposal will undermine the resilience of U.S. capital markets?” 

Yellen: “I am not going to take a position on the details of the rule.” This is despite Secretary Yellen’s testimony in June 2023, where Congressman Lucas asked Secretary Yellen about the impact of the forthcoming Basel Proposal. Secretary Yellen affirmed that Treasury would have the opportunity to provide feedback. 

June 13, 2023 
Lucas: “Just to reiterate, it is concerning that U.S. banks will have to implement both significant market structure changes, including to US treasury markets, and increase capital requirements associated with market activities. I’ll ask this: are the Fed and the SEC coordinating with Treasury on the economic analysis necessary to understand potential consequences to both markets and end-users, and will you commit to this analysis?” 

Yellen: “I believe this is likely to be a Fed set of regulations and proposals that Treasury is not involved in reviewing those. But, I am assuming that the Federal Reserve would, possibly join with the FDIC, put out a notice of proposed rulemaking and we would certainly have the opportunity to discuss, review, and comment.” Secretary Yellen and Congressman Lucas have previously discussed the importance of supporting U.S. capital markets and protecting those who depend on them. Unfortunately the Basel Endgame proposal will do neither.

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FULL TRANSCRIPTS:
February 6, 2024:
Lucas: “When we last discussed Basel Endgame, you said that Treasury would have the opportunity to provide feedback on the proposal.

Given Treasury’s mission is to maintain a strong economy and promote economic growth, has Treasury provided feedback to the Fed, and are you confident that the proposal will not undermine the resilience of the U.S. capital markets that are so critical to the economy?” 

Yellen: “I am not aware that Treasury has provided any formal feedback to the Fed on the Basel regulations. As you know, they have received many comments expressing concern about a number of different proposals that were embodied in the Basel III package. I know that all of the banking agencies that published that are considering how to respond to those comments and concerns in trying to craft a final rule.”

Lucas: “Are you concerned that the proposal will undermine the resilience of U.S. capital markets?”

Yellen: “I am not going to take a position on the details of the rule. I would just say again that I believe there should be strong capital and liquidity standards to ensure that these institutions operate in a safe and sound manner. But it is up to the banking agencies to valuate the specifics.”
Click here to watch Lucas’ full Q&A (02/06/2024). 

June 13, 2023:
Lucas: “While we don’t yet have the details of the Basel III proposal coming from the Fed, Vice Chair Barr has indicated it will impact the capital market activities of large U.S. institutions. I am concerned about adding punitive capital charges to U.S. banks being counterproductive to promoting liquidity in efficient markets.

This will come at the same time the SEC is engaged in dramatic and transformational market structure changes at an unprecedented rate. Since the Treasury’s mission is to maintain a strong economy and promote economic growth and stability, are you confident that these policy changes will not undermine the resilience of U.S. capital markets that support the economy, Madam Secretary?”

Yellen: “I certainly agree with the goal that you mentioned of maintaining strong capital markets. I am not really in a position to comment on these regulations. I don’t believe they’ve been released yet and I haven’t been fully briefed. But we will certainly review carefully and think about the implications that forthcoming changes could have on the functioning of our capital markets.” 

Lucas: “Just to reiterate, it is the concern that U.S. banks will have to implement both significant market structure changes, including affecting U.S. treasury markets, and increase capital requirements associated with market activities. I’ll ask this: are the Fed and the SEC coordinating with Treasury on the economic analysis necessary to understand potential consequences to both markets and end users, and will you commit to this analysis?”

Yellen: “I believe this is likely to be a Fed set of regulations and proposals that Treasury is not involved in reviewing those. But, I am assuming that the Federal Reserve would possibly join with the FDIC, and put out a notice of proposed rulemaking and we would certainly have the opportunity to discuss, review, and comment.”

Lucas: “You see where my concern is, the potential impact is so dramatic. If the entities engaged in the various elements of dramatic change aren’t cross referencing their actions, the possibility of unintended consequences concerns me.”

Click here to watch Lucas’ full Q&A (06/13/23)

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