Right-Sizing the U.S. Bank Capital Framework: A Return to Tailoring, Economic Growth, and Competitiveness

1[House Hearing, 119 Congress]2[From the U.S. Government Publishing Office]34                   RIGHT-SIZING THE U.S. BANK CAPITAL5                    FRAMEWORK: A RETURN TO TAILORING,6                   ECONOMIC GROWTH, AND COMPETITIVENESS7=======================================================================89                                HEARING1011                               BEFORE THE1213                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS1415                                 OF THE1617                    COMMITTEE ON FINANCIAL SERVICES18                     U.S. HOUSE OF REPRESENTATIVES1920                    ONE HUNDRED NINETEENTH CONGRESS2122                             FIRST SESSION2324                               __________2526                           DECEMBER 11, 20252728                               __________2930                           Serial No. 119-493132       Printed for the use of the Committee on Financial Services3334[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]3536                            www.govinfo.gov3738                              __________3940                     U.S. GOVERNMENT PUBLISHING OFFICE4163-577 PDF                  WASHINGTON : 202642=======================================================================4344                 HOUSE COMMITTEE ON FINANCIAL SERVICES4546                    FRENCH HILL, Arkansas, Chairman4748BILL HUIZENGA, Michigan, Vice        MAXINE WATERS, California, Ranking49    Chairman                             Member50FRANK D. LUCAS, Oklahoma             SYLVIA R. GARCIA, Texas, Vice51PETE SESSIONS, Texas                     Ranking Member52ANN WAGNER, Missouri                 NYDIA M. VELAZQUEZ, New York53ANDY BARR, Kentucky                  BRAD SHERMAN, California54ROGER WILLIAMS, Texas                GREGORY W. MEEKS, New York55TOM EMMER, Minnesota                 DAVID SCOTT, Georgia56BARRY LOUDERMILK, Georgia            STEPHEN F. LYNCH, Massachusetts57WARREN DAVIDSON, Ohio                AL GREEN, Texas58JOHN W. ROSE, Tennessee              EMANUEL CLEAVER, Missouri59BRYAN STEIL, Wisconsin               JAMES A. HIMES, Connecticut60WILLIAM R. TIMMONS, IV, South        BILL FOSTER, Illinois61    Carolina                         JOYCE BEATTY, Ohio62MARLIN STUTZMAN, Indiana             JUAN VARGAS, California63RALPH NORMAN, South Carolina         JOSH GOTTHEIMER, New Jersey64DANIEL MEUSER, Pennsylvania          VICENTE GONZALEZ, Texas65YOUNG KIM, California                SEAN CASTEN, Illinois66BYRON DONALDS, Florida               AYANNA PRESSLEY, Massachusetts67ANDREW R. GARBARINO, New York        RASHIDA TLAIB, Michigan68SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York69MIKE FLOOD, Nebraska                 NIKEMA WILLIAMS, Georgia70MICHAEL LAWLER, New York             BRITTANY PETTERSEN, Colorado71MONICA DE LA CRUZ, Texas             CLEO FIELDS, Louisiana72ANDREW OGLES, Tennessee              JANELLE BYNUM, Oregon73ZACHARY NUNN, Iowa                   SAM LICCARDO, California74LISA McCLAIN, Michigan75MARIA SALAZAR, Florida76TROY DOWNING, Montana77MIKE HARIDOPOLOS, Florida78TIM MOORE, North Carolina7980                      Ben Johnson, Staff Director8182                                 ------8384                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS8586                     ANDY BARR, Kentucky, Chairman8788BARRY LOUDERMILK, Georgia,           BILL FOSTER, Illinois, Ranking89    Vice Chairman                        Member90BILL HUIZENGA, Michigan              NYDIA M. VELAZQUEZ, New York91ROGER WILLIAMS, Texas                GREGORY W. MEEKS, New York92JOHN W. ROSE, Tennessee              DAVID SCOTT, Georgia93WILLIAM R. TIMMONS IV, South         BRAD SHERMAN, California94    Carolina                         AL GREEN, Texas95RALPH NORMAN, South Carolina         JUAN VARGAS, California96DANIEL MEUSER, Pennsylvania          SEAN CASTEN, Illinois97YOUNG KIM, California                STEPHEN F. LYNCH, Massachusetts98BYRON DONALDS, Florida               JOYCE BEATTY, Ohio99SCOTT FITZGERALD, Wisconsin          CLEO FIELDS, Louisiana100MIKE FLOOD, Nebraska101MONICA DE LA CRUZ, Texas102TIM MOORE, North Carolina103104                        C  O  N  T  E  N  T  S105106                              ----------107108                      Thursday, December 11, 2025109                           OPENING STATEMENTS110111                                                                   Page112Hon. Andy Barr, Chairman of the Subcommittee on Financial113  Institutions, a U.S. Representative from Kentucky..............     1114Hon. Bill Foster, Ranking Member of the Subcommittee on Financial115  Institutions, a U.S. Representative from Illinois..............     3116117                               STATEMENTS118119Hon. French Hill, Chairman of the Committee on Financial120  Services, a U.S. Representative from Arkansas..................     4121Hon. Maxine Waters, Ranking Member of the Committee on Financial122  Services, a U.S. Representative from California................     5123124                               WITNESSES125126Mrs. Margaret Tahyar, Head of Financial Institutions, Davis Polk127  & Wardwell LLP.................................................     5128    Prepared Statement...........................................     8129Mrs. Amanda Eversole, President and Chief Executive Officer,130  Financial Services Forum.......................................    18131    Prepared Statement...........................................    20132Mr. Andrew Olmem, Managing Partner and Co-Leader of the Financial133  Services Group, Mayer Brown....................................    36134    Prepared Statement...........................................    38135Mr. Mike Flood, Head of Center for Capital Markets136  Competitiveness, U.S. Chamber of Commerce......................    44137    Prepared Statement...........................................    46138Mr. Simon Johnson, Professor of Entrepreneurship at the MIT Sloan139  School of Management...........................................    54140    Prepared Statement...........................................    56141142                                APPENDIX143144                   MATERIALS SUBMITTED FOR THE RECORD145146Hon. Andy Barr:147    The Mortgage Bankers Association (MBA).......................   102148149                 RESPONSES TO QUESTIONS FOR THE RECORD150151Written responses to questions for the record from Mr. Simon152  Johnson153    Representative Al Green......................................   108154155                              LEGISLATION156157H.R. 5616, the $2.50 for America's 250th Act.....................   111158H.R. 1761, the Donald J. Trump $250 Bill Act.....................   118159160                   RIGHT-SIZING THE U.S. BANK CAPITAL161                   FRAMEWORK: A RETURN TO TAILORING,162                  ECONOMIC GROWTH, AND COMPETITIVENESS163164                              ----------165166                      Thursday, December 11, 2025167168             U.S. House of Representatives,169            Subcommittee on Financial Institutions,170                           Committee on Financial Services,171                                                    Washington, DC.172    The subcommittee met, pursuant to notice, at 10:09 a.m., in173room 2128, Rayburn House Office Building, Hon. Andy Barr174[chairman of the subcommittee] presiding.175    Present: Representatives Barr, Hill, Huizenga, Williams of176Texas, Loudermilk, Rose, Timmons, Kim, Flood, Moore, Foster,177Waters, Velazquez, Scott, Sherman, Green, Vargas, Casten,178Lynch, Beatty, and Fields.179    Chairman Barr. The Subcommittee on Financial Institutions180will come to order.181    Without objection, the chair is authorized to declare a182recess of the committee at any time.183    Today's hearing is titled ``Right-Sizing the U.S. Bank184Capital Framework: A Return to Tailoring, Economic Growth, and185Competitiveness.''186    Without objection, all members will have 5 legislative days187within which to submit extraneous materials to the chair for188inclusion in the record.189    I now recognize myself for 4 minutes for an opening190statement.191192     OPENING STATEMENT OF HON. ANDY BARR, CHAIRMAN OF THE193 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE194                         FROM KENTUCKY195196    Today, the subcommittee turns its attention to an issue197that sits at the heart of American economic strength: our bank198capital framework. For years, Washington has layered rule upon199rule on American banks, forcing them to retain capital at200levels that far exceed standards applicable to our global201competitors, and the results have been detrimental to U.S.202firms.203    We have a capital system that increasingly gold-plates204international requirements, imposes one-size-fits-all mandates205on institutions with different risk and business profiles, and206undermines the competitiveness of American institutions.207    Let me be clear. Republicans on this committee support a208tailored, commonsense capital framework that protects the209safety and soundness of the American financial system, but what210we do not support is a regulatory framework that needlessly211restricts credit, penalizes growth, and places American banks212at a disadvantage against foreign competitors who are held to213lesser standards.214    The Basel III Endgame framework should not be solely215focused on international harmonization. It should be focused on216economic growth as well. Capital should be right-sized to217protect the economy, not inflated for ideological reasons, not218used as a tool to achieve political objectives, and not219calibrated without regard to the real-world impacts on lending220liquidity and the economic vitality of local community221institutions.222    This is why the Biden Administration's initial Basel III223Endgame proposal was deeply flawed and received bipartisan224criticism. It threatened to elevate capital burdens so far225above international norms that entire categories of banking226business lines, from residential mortgages to market-making,227could have migrated to offshore institutions.228    Fortunately, the bipartisan message was clear: The Basel229III Endgame must be reproposed, and that reproposal is not just230an opportunity but a responsibility to get this right.231    We need a framework that is proportional, tailored, and232grounded in empirical analysis. We need a framework that233recognizes the diversity of the American banking system. We234must build upon the bipartisan S.2155 to ensure capital235requirements are tailored based on a bank's size, complexity,236and risk profile.237    Indeed, a regional bank focused on traditional lending238should not be subject to the same standards intended for239institutions engaged in significant trading, cross-border240activities, or complex market operations.241    We must account for growth in the economy by indexing242regulatory and category thresholds. This way banks do not243stifle their growth when it is needed most.244    If we get this right, if we right-size capital, eliminate245unnecessary gold-plating, and build a framework that tailors246requirements to actual risk, we can preserve what makes247American banking exceptional.248    We do not want a barbell banking system in this country249with a number of small banks and global systemically important250banks (G-SIBs) and nothing in between. Achieving this stems251from a well-calibrated capital framework that incentivizes252growth and competition while maintaining safety and soundness.253    We must ensure that community banks continue to serve as254economic anchors in small towns and rural communities. We must255keep U.S. institutions competitive on the global stage, and we256must create a regulatory environment that supports--not257strangles--growth, innovation, and opportunity.258    So today I look forward to hearing from our witnesses about259how we can design a capital framework that strengthens260stability without sacrificing competitiveness, that respects261the structure of the American banking system, that promotes the262heterogeneity and diversity of that system, and reins in the263excesses of prior regulatory overreach.264    I thank our witnesses for being here today to provide their265valuable insights and perspectives, and I yield back.266    Chairman Barr. I now recognize the ranking member of the267subcommittee, Dr. Foster, for 4 minutes for his opening268statement.269270 OPENING STATEMENT OF HON. BILL FOSTER, RANKING MEMBER OF THE271 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE272                         FROM ILLINOIS273274    Mr. Foster. Thank you, Chairman Barr, and to our witnesses.275    I represent Woodstock, Illinois, where the film Groundhog276Day was filmed, and so here we go; going to once again examine277the regulatory capital framework for U.S. banks.278    Part of the prudential regulatory umbrella, capital279standards provide a buffer against insolvency when financial280institutions take losses, helping them weather economic281downturns, failed investments, or the missteps of management.282    The 2008 financial crisis highlighted flaws in the283regulatory framework for U.S. banks when the true risk of284assets did not match the corresponding capital charge assigned285to them. Supposedly, well-regulated--well-rated, mortgage-286backed securities and off-balance sheet exposures received287little supervisory attention, leading to massive losses and a288crisis of confidence in the banking system when those same289assets dropped by enormous amounts.290    In response to this crisis and the taxpayer-funded bailout291of the U.S. financial system, Congress passed the Wall Street--292Dodd-Frank Wall Street Reform and Consumer Protection Act to293enhance the supervision and regulation of the financial system.294Dodd-Frank took a tiered approach applying the most stringent295capital to the largest and most complex banks that posed the296greatest risk to financial stability. The largest banks became297subject to safeguards meant to prevent a similar crisis,298including higher capital ratios, stress testing, resolution299planning, and other prudential requirements.300    Following the financial crisis, financial regulators around301the world, including the United States, convened in forums like302the Basel Committee on Banking Supervision to facilitate303cooperation between member countries and enhance financial304stability. These forums are important, as this cooperation305prevents a race to the bottom that would ultimately make the306global financial system much less safe.307    Since the enactment of Dodd-Frank, Congress has revisited308several prudential standards to respond to changes in the309banking economy, risks to financial stability, change over310time, and new risks to merge which, for example, everything311having to do with technology that should be our focus today and312unfortunately, instead of repeating the same debate that has313crystallized around 2009 has not changed in almost 15 years.314    The regional banking crisis, for example, in 2023315demonstrated that bank runs following steep losses can occur316much faster than previously thought, and they are going to317become faster when agentic AI makes bank runs possible at the318speed of AI rather than the speed of internet gossip.319    I worry that these type of events will be much more common320with a commoditization of AI, the introduction of emerging321volatile assets into the banking system. Banking regulators322have a duty to ensure that the banks and their agencies are323ready to deal with these types of runs and to strengthen324safeguards against rapid withdrawals and dramatic price swings325in various asset classes.326    Under President Trump, the banking regulators have taken327steps that undermine this financial stability, namely, by328dismantling the Consumer Financial Protection Bureau, which was329created by Dodd-Frank to stop the very same predatory lending330practices that contributed to the global financial crisis.331    They have also moved to weaken stress testing for the332largest banks, cut staffing at the Financial Stability333Oversight Council (FSOC) and its member agencies, and are334pushing firms to engage with digital assets that can experience335extremely high price volatility.336    We expect banking regulators will soon propose a revised337rule to implement the principles of the Basel III Endgame.338Under the last iteration of the proposal, members of this339committee raised certain concerns about the proposal related to340the capital treatment of mortgages, small business loans, tax341equity, and derivatives used for risk management.342    So I encourage regulators to consider these concerns as343they develop the new proposal and the combined impact of344financial stability with the other changes being advanced on345leverage, stress testing, and other areas.346    My colleagues on this committee should call for a robust347cost-benefit analysis for the coming proposal, as they did with348the last proposal, and push regulators to back up their349proposals with data.350    Thank you again, Chair Barr, and I yield back.351    Chairman Barr. The gentleman yields back.352    I now recognize the chairman of the full committee, Mr.353Hill, for 1 minute for an opening statement.354355  STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE COMMITTEE ON356    FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM ARKANSAS357358    Chairman Hill. Thank you, Chairman Barr.359    The U.S. banking system is at a pivotal juncture right now.360Regulators have the opportunity to establish credit and capital361standards that strengthen financial security without unduly362limiting economic growth or a bank's ability to compete on an363international scale.364    Even so, small and community banks continue to face365disproportionate compliance and capital burden that were never366intended for institutions of their size. Despite these367challenges, U.S. banks remain, as Chairman Powell has mentioned368many times, well-capitalized, resilient, and able to support369lending, investment, and economic growth.370    This does not mean we should ignore the inefficiencies in371the current framework, and particularly under Chairman Barr's372leadership, the Congress must encourage regulators to tailor373capital requirements based on bank size, complexity, and risk374profile, rather than apply a one-size-fits-all approach.375    Thoughtful tailoring can free up capital for productive376uses, helping banks support small businesses, home buyers, and377economic expansion across all of our districts.378    Thank you, and I yield back.379    Chairman Barr. I now recognize the ranking member of the380full committee, Mrs. Waters, for a 1-minute opening statement.381382    STATEMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE383  COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM384                           CALIFORNIA385386    Ms. Waters. Thank you very much.387    I look forward to the testimony as we discuss bank capital.388    Trump's regulators and Republicans are tearing down the389safeguards that keep our banks safe to ensure stable economic390growth. Reducing capital for our largest banks will make them391less resilient, less likely to lend during periods of stress,392and more likely to fail.393    Weakening these safeguards, these guardrails, leaves394hardworking Americans to bear the consequences. We saw this in3952008 when banks gambled with borrowed money and families,396workers, and small businesses, and whole communities paid the397price.398    If we want to strengthen our financial system for the399benefit of small businesses and their workers, as well as400community banks and credit unions, then I hope Chairman Hill401will work with me to advance overdue deposit insurance reforms402and on this issue of capital and the continued efforts by the403Republicans to reduce the capital that the banks should hold,404we are going to have a fight.405    Chairman Barr. The gentlelady's time has expired.406    Today we welcome the testimony of some outstanding407witnesses. First, Mrs. Margaret Tahyar, head of financial408institutions at Davis Polk; Mrs. Amanda Eversole, president and409chief executive officer of Financial Services Forum; Mr. Andrew410Olmem, managing partner and co-leader of the Financial Services411group at Mayer Brown; Mr. Mike Flood--the other Mike Flood--412head of the Center for Capital Markets Competitiveness at the413U.S. Chamber of Commerce; and Mr. Simon Johnson, professor of414entrepreneurship at the MIT Sloan School of Management.415    We thank each of you for taking the time to be here. Each416of you will be recognized for 5 minutes to give an oral417presentation of your testimony. Without objection, your written418statements will be made part of the record.419    Mrs. Tahyar, you are now recognized for 5 minutes for your420oral remarks.421422 STATEMENT OF MARGARET TAHYAR, HEAD OF FINANCIAL INSTITUTIONS,423                   DAVIS POLK & WARDWELL LLP424425    Mrs. Tahyar. Chairman Barr, Ranking Member Foster, and426members of the subcommittee, thank you for asking me to427testify.428    Capital regulation is long overdue for a rethink, and this429subcommittee should encourage the banking regulators to move430quickly to appropriately implement the Basel III Endgame with431appropriate data, appropriate cost-benefit analysis.432    I would like to leave you with three thoughts this morning.433    First, capital is very important, but it is not the only434tool in the financial stability kit.435    Second, choices about the calibration of capital are436political economy choices that involve credit engineering. They437can also change the regulatory perimeter.438    Third, our economy and our banking sector are complex.439Tailoring, as the chairman has noted, is the solution so that440we do not treat large banks the same as community banks.441    Capital is an important thing, but it is not everything. We442cannot expect it to be the sole insurance against financial443stability. We should see it as part of an integrated system444that also includes early intervention, resolution planning,445credit concentration, contingency planning, risk management,446total loss-absorbing capacity (TLAC), deposit insurance, and447hands-on supervision and we should understand that capital448absorbs losses, but it is not liquidity regulation, so it does449not help against quick deposit runs.450    Capital regulation involves political economy choices. How451much financial stability insurance should a banking452organization be required to purchase? Any increase in bank453capital requirements increases the cost of funding. I think we454can all agree that capital levels going into the great455financial crisis were too low, but today I think we have to ask456whether current capital levels also come at a cost to the real457economy.458    Risk weighting for purposes of risk-based capital459requirements is a form of credit engineering. The zero percent460risk weighting for Treasurys, the 50 percent risk weighting for461mortgages, and the international Basel Committee's 1,250462percent risk weighting for crypto assets reflect political463economy choices that are appropriate for this committee to464oversee. For example, if implemented, the crypto assets risk465weighting would seem to be contrary to the Guiding and466Establishing National Innovation for U.S. Stablecoins (GENIUS)467Act.468    Another point is that any capital framework will need469updating and renewal from time to time even though the debates470share patterns. That update should be data-driven,471understanding it will never be perfect.472    Markets of technology and geopolitics are not waiting473around for the Basel III Endgame. In fact, calling this last--474latest round of rulemaking Basel III Endgame is kind of a475misnomer, implying that, once the next round of rules takes476effect, we are done.477    I think we should not think of capital as a Marvel movie478with a tidy ending. The economy, the financial system will479remain in constant flux, and banking regulators should480periodically review capital regulation.481    Capital regulation should be tailored. The tailoring482principle is especially critical in the United States given the483complexity of our economy, the largest economy in the world,484the geographic spread. We have a banking sector whose structure485is very different from most other countries with our many486different sizes of banks, and we need to avoid that barbell.487    Wisely, the banking regulators did not impose every new488complexity on every banking organization, but it is fair to489question whether we are appropriately tailored and whether490there should be some indexing particularly for--as the economy491grows. All policy choices have tradeoffs, but our focus should492be on the real economy, jobs, American competitiveness, and493wealth creation.494    This should not be a red team/blue team issue. We should495approach it in the spirit of bipartisanship as a purple issue496and in that spirit, I am wearing a purple jacket today.497498    [The prepared statement of Mrs. Tahyar follows:]499    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]500501    Chairman Barr. Thank you. Very good.502    Mrs. Eversole, you are now recognized for your testimony.503504  STATEMENT OF AMANDA EVERSOLE, PRESIDENT AND CHIEF EXECUTIVE505               OFFICER, FINANCIAL SERVICES FORUM506507    Mrs. Eversole. Great. Thank you, Chairman Barr, Chairman508Hill, Ranking Member Foster, and Ranking Member Waters, members509of the subcommittee. My name is Amanda Eversole, and I am510president and CEO of the Financial Services Forum, which511represents the eight global systemically important banks, or G-512SIBs, headquartered in the United States.513    Every day, forum members and their nearly 700,000 employees514across this Nation provide the capital that fuels America's515economy. Forum members provide nearly half of all consumer516lending by banks in the United States by helping Americans517purchase their first homes, buy a family car, or start a518business.519    Forum members also support our vibrant, highly liquid520capital markets, ensuring that they remain the envy of the521world and forum members play a critical role in meeting the522funding needs of other financial institutions, including523community and regional banks.524    Above all, we remain committed to ensuring a strong,525stable, and healthy financial sector and economy.526    The U.S. G-SIBs have never been more capitalized and more527resilient. They are subject to the most stringent regulatory528standards among both U.S. and foreign competitors. Over the529past 15 years, the U.S. G-SIBs have tripled their capital and530now maintain more than $1 trillion in high-quality capital, but531more capital is not always better. There are economic tradeoffs532to higher requirements. According to academic research, a 3533percent increase in required capital costs can cost the U.S.534economy between $100-and $150 billion per year and it is535critical that we get the balance right.536    After years of post-crisis implementation, now is the time537to modernize large bank capital regimes so U.S. banks can538better support American families, small businesses, and our539capital markets.540    We appreciate efforts by the administration and regulators541to take a comprehensive approach to capital. There are three542important factors that should be considered as this committee543explores this issue further.544    First, capital requirements must be supported by data and545calibrated accordingly. The Basel III Endgame proposal from5462023 serves as a prime example. That proposal and the547regulatory approach to the Basel III Endgame would have548increased capital for forum members by 25 percent without any549clear justification or analysis. More than 97 percent of550commenters raised concerns with the proposals, and 86 percent551of those comments came from outside of the banking industry,552which is an important fact to note.553    Capital rules have a clear and significant impact on554homeowners, small businesses, retirees, manufacturers, and555farmers. It is critical that we take the economic impacts into556consideration when determining capital rules, and we look557forward to the revised Basel III Endgame proposal that meets558the needs of the U.S. economy.559    Second, several aspects of the large bank capital framework560make it harder for U.S. banks to compete, pushing activity to561foreign banks and less regulated nonbanks. This migration of562risk makes the system less safe and less stable.563    The G-SIB surcharge is perhaps the best example of a self-564inflicted disadvantage with our foreign competitors. The U.S.565approach to the G-SIB surcharge is nearly twice that of our566foreign competitors, resulting in an additional $100 billion in567capital that could be deployed into the U.S. economy.568    We appreciate the commitment by regulators to review this569rule, and we look forward to a proposal that will harmonize the570U.S. G-SIB surcharge with the international standards to better571meet the needs of U.S. business and hardworking American572families.573    Third, enhanced transparency and public accountability is574the bedrock principle of good government. The Federal Reserve's575initiative to improve the transparency of stress testing models576and scenarios will improve bank risk management, reduce577volatility, and allow banks to better serve their clients and578customers. We look forward to providing our comments on this579proposal.580    The world has changed over the last 15 years, and581regulations have not kept pace. Thankfully, regulators have582begun to address this problem by recalibrating the enhanced583supplementary leverage ratio, a move that will enable banks to584intermediate the U.S. Treasury market without sacrificing585overall financial stability. We look forward to continued586progress in this important area.587    Now is the time to modernize capital requirements so we can588unleash our full economic potential, boost lending to small589businesses and consumers, and drive America's economy forward.590Of course, we can do that while protecting the safety and591soundness of the best financial system in the world.592    Thank you for the opportunity to testify today, and I look593forward to your questions.594595    [The prepared statement of Mrs. Eversole follows:]596    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]597598    Chairman Barr. Thank you.599    Mr. Olmem, you are now recognized.600601 STATEMENT OF ANDREW OLMEM, MANAGING PARTNER AND CO-LEADER OF602           THE FINANCIAL SERVICES GROUP, MAYER BROWN603604    Mr. Olmem. Chairman Barr, Ranking Member Foster, Ranking605Member Waters, and the members of the subcommittee, I606appreciate the opportunity to testify today on rightsizing U.S.607bank capital framework. My testimony is given in my personal608capacity and not on behalf of Mayer Brown or any of its609clients.610    I want to start by commending the subcommittee for holding611this hearing because capital requirements are at the core of612effective bank regulation. They have a major impact on the613safety and soundness of the banking system as well as on the614overall economy and each American household. It is, therefore,615critical that they are appropriately calibrated.616    This committee's oversight of the prior Basel III Endgame617proposal played a valuable role in raising bipartisan concerns618about its potential adverse consequences. Those concerns619prompted the banking regulators to pause and reconsider the620proposal. Thanks to this committee's work, the Basel endgame is621moving in a better direction.622    As the subcommittee now prepares to evaluate the upcoming623revised Basel III Endgame proposal, I have included in my624written testimony several recommendations for your625consideration. I concur with the prior remarks of my panelists626about the importance of basing capital requirements on the best627data and research available and that choices about capital628requirements are public policy choices.629    I would like to highlight three additional points from my630written testimony.631    First, it is important to view any capital proposal within632the context of the larger regulatory reforms the banking633regulators are currently undertaking. The most important, in my634view, of these is the ongoing reform of bank supervision.635    Effective supervision is an essential companion to capital636requirements because supervisors can identify and address risks637that do not show up on balance sheets. Unfortunately, bank638supervision has become far too bureaucratic, with supervisory639matters lingering for years unresolved. Supervision should be640focused on identifying problematic and material risks,641addressing them, and returning a bank to normal operations.642    Reforming bank supervision will facilitate better643compliance with bank capital requirements, as well as faster644resolution of problems with bank capital and other safety and645soundness matters. The banking regulators' efforts to reform646banks' supervision should have Congress' full support.647    Second, one-size-fits-all regulation can undermine648competition and the ability of banks to devise unique business649models to serve their communities and customers. As noted, to650address this problem, Congress has statutorily mandated in both651the Dodd-Frank Act and in the Economic Growth, Regulatory652Reform, and Consumer Protection Act, known as S.125, that the653banking regulators tailor enhanced prudential regulation. This654mandate sensibly seeks to prevent a $300 billion bank from655being regulated in the same manner as a $2-, $3-, or $4656trillion bank.657    However, changes in the marketplace and inflation can push658banks into inappropriate tailoring categories. Given the clear659congressional mandate, the banking regulators have reasonable660grounds for revising and updating the existing tailoring661categories.662    Finally, it is important to consider the vital national663interest at stake in ensuring that the U.S. has the world's664safest, most sophisticated, and technologically advanced665financial regulatory system. The U.S. benefits greatly by being666the world's financial capital, where all major financial667institutions want to participate and invest.668    These benefits include lower financing costs for, not only669U.S. consumers and businesses, but also for the Federal670Government's now $38 trillion debt. Furthermore, the dynamic671$30 trillion U.S. economy requires an equally dynamic financial672system that can fund the remarkably diverse and complex needs673of consumers and businesses.674    Unfortunately, U.S. bank regulation has diminished the675attractiveness of the U.S. market and made the banking system676less innovative and less adaptable. These trends need to be677corrected; otherwise, Americans will face higher costs of678living in the short run and will build wealth at a slower pace679in the long run.680    The finalization of the Basel endgame proposal, updating681the tailoring thresholds, and reforming bank supervision are682important steps for modernizing U.S. bank regulation and683ensuring that the U.S. has the banking system it needs to see684the economy thrive and American households' living standards685rise.686    Thank you.687688    [The prepared statement of Mr. Olmem follows:]689   [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]690691    Chairman Barr. Thank you.692    Mr. Flood, you are now recognized for 5 minutes.693694  STATEMENT OF MIKE FLOOD, HEAD OF CENTER FOR CAPITAL MARKETS695           COMPETITIVENESS, U.S. CHAMBER OF COMMERCE696697    Mr. Flood of Nebraska. Good morning. Chairman Barr, Ranking698Member Foster, Ranking Member Waters, members of the699subcommittee, thank you for the opportunity to testify on700rightsizing the U.S. bank capital framework. My name is clearly701the other Mike Flood.702    With over 27 years of experience in the financial services703industry, I am honored to represent the U.S. Chamber of704Commerce, the world's largest business association representing705businesses of all sizes.706    Capital decisions affect every consumer and business in707your district, whether they are a first-time home buyer, a708local tailor, or a new business. Since the release of the709previous Basel III Endgame proposal in 2023, both parties in710Congress, numerous State and local governments, industry and711bank customers have all raised significant concerns.712    In reaction, the previous Fed Reserve Vice Chair Barr713recognized that not only raising capital but raising it beyond714global standards should be recalibrated. We applaud the current715leaders of prudential regulators for continuing this process,716including updating the enhanced supplementary leverage ratio717and reforming the stress testing framework.718    We thank the members of this committee also for your719continued oversight and engagement.720    There are three reasons why businesses care about capital.721    First, banks supply a substantial majority of small722business financing. Last year, banks provided 9.1 million small723business loans, of which the G-SIBs comprise 25 percent.724    Two, increased capital increases costs or reduces credit725availability. A Chamber survey of over 300 treasurers--not 300726bank treasurers, 300 treasurers--makes clear that capital727increases are felt by businesses and consumers. It found that72887 percent of businesses have been negatively affected by729financial regulation and, more importantly, 40 percent have730decreased services to their customers.731    Furthermore, a Basel study stated that for every 1 percent732increase in capital, we should expect a 13 basis point increase733in loan spreads. Think about that if we were to increase734capital by 20 percent.735    Furthermore, the Basel Committee itself said higher capital736and liquidity requirements are soon to increase the cost of737bank credit.738    Three, more capital is unnecessary. Results in statements739from the regulators themselves do not support increasing740capital.741    First, in the past three stress tests reveal that banks can742withstand, quote, a substantial downturn, remain above minimum743capital requirements, and lends to the U.S. economy. Two, bank744capital has more than tripled since 2009 and let us not forget745that coronavirus disease (COVID) was a real-life stress test.746If you do not believe me, let us believe the results from the747Federal Deposit Insurance Corporation (FDIC).748    Over the past 5 years, 11 banks have failed equally to a749.052 percent failure rate. At the same time, bank charters have750decreased by 3 percent annually with a mere 45 new charters751granted.752    So what is the impact on your constituents? I am going to753give you a few examples of the Chamber's analysis of the754previous proposal found.755    One, private companies will pay more than public companies756if we have excessive capital. Despite that 99 percent of U.S.757companies are private companies, they are seen by Basel III758Endgame as more risky than public companies. Quite frankly, it759is hard to imagine, outside of taste, how Five Guys, a private760company, and Shake Shack, a public company, are different.761    Two, lines of credit under Basel III Endgame would be more762expensive. This is the monthly lifeblood of nearly any763business. Your local tailor will pay more for the used line of764credit and, oddly, pay more for the unused line of credit.765Again, this is beyond global standards.766    Three, mortgages, credit cards, and automotives will cost767more. Especially for constituents with low credit scores and768individuals with low or moderate incomes will be most affected.769    In conclusion, at a time of significant affordability770concerns, it is critically important to calibrate the entire771bank capital structure to fit the size and complexity of the772U.S. banking system. This does include all banks--local,773community, regional, super-regional, national, international,774and global banks.775    The Chamber appreciates the current regulatory efforts to776update the capital framework and bring supervision back to777materiality. We, therefore, urge regulators to adopt the778following recommendations:779    Calibrate any final rule to preserve affordable lending,780market-making liquidity, and a competitive U.S. banking system.781    Two, base requirements on robust economic analysis that782considers the impact on lending and economic growth.783    Three, update and tailor capital requirements, as well as784thresholds to reflect the size and risk profile of individual785institutions for all categories of banks.786    Thank you, and I look forward to answering your questions.787788    [The prepared statement of Mr. Flood follows:]789    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]790791    Chairman Barr. Thank you.792    Finally, Mr. Johnson, you are recognized.793794 STATEMENT OF SIMON JOHNSON, PROFESSOR OF ENTREPRENEURSHIP AT795               THE MIT SLOAN SCHOOL OF MANAGEMENT796797    Mr. Johnson. Thank you.798    Chairman Barr, Ranking Member Foster, members of the799subcommittee, thank you for asking me to testify at this timely800and important hearing. My name is Simon Johnson. I am a801professor at MIT. I was previously the chief economist at the802International Monetary Fund. I am a former board member at803Fannie Mae. I am currently co-chair of the Chartered Financial804Analyst (CFA) Institute Systemic Risk Council.805    I would like to make three points. The first is about the806numbers. Tier 1 capital, as you know, is the strongest form of807capital because it is fully loss-absorbing; this includes808shareholders' equity and retained earnings.809    The supplementary leverage ratio, SLR, calculates the810amount of Tier 1 capital in 13 large banks relative to their811total leverage exposure, which includes total assets and812certain off-balance sheet items, such as derivatives and loan813commitments.814    The weighted average SLR for the eight American globally815systemically important banks, the G-SIBs, peaks at close to 7816percent in 2017, and it is now 5.8 percent. That is an increase817in leverage. This is all from that publicly available data as818compiled by the Kansas City Fed.819    European and Canadian G-SIBs are more leveraged, with an820average SLR at 4.89 percent. Now, this is exactly the same821relative situation as prevailed before the global financial822crisis of 2008. The biggest European banks are more leveraged823than the biggest U.S. banks, but when a crisis breaks, more824leverage means more vulnerability for individual banks and the825financial system. Thank goodness that the FDIC pre-2008826resisted attempts to allow more leverage in the U.S. banking827system. By insisting on lower leverage, the FDIC under Sheila828Bair, helped protect the taxpayer, limit the fiscal damage, and829reduced the number of jobs lost when the crisis hit.830    It is not--and I repeat ``not''--to the European advantage831that their big banks are more leveraged. That is a major832vulnerability for them, exposing their taxpayers and their833workers and their nonfinancial businesses to more risk. Do not834race the Europeans to the bottom.835    Second, unfortunately, the FDIC today is in the exact836opposite position to what it was before 2008 and just signed837off, along with the Federal Reserve and the SEC, on reducing838the SLR.839    Now, based on the regulators' own calculations, this recent840rule change will allow the SLR--so, again, setting the maximum841leverage for big banks--to reach around 3.8 percent for those84213 mega banks and we are now discussing how to adjust risk-843weighted capital and stress tests and other things that will844allow the banks to move closer to that leverage.845    The regulators have clearly signaled that we are heading846back toward the leverage ratios that prevailed before the847crisis of 2008 and we are doing this without a proper cost-848benefit analysis, without any kind of robust economic analysis.849What we need is a careful and complete study from the850regulators of what will happen to the system's stability with851lower capital requirements. They have not provided this despite852repeated requests from responsible parties.853    Third, the arrival of artificial intelligence is a game854changer for finance, as was discussed and emphasized at the855House Financial Services Committee hearing yesterday. One856presumed impact is that decisionmaking will speed up globally.857AI agents will rush into trades pushing up asset prices. These858same algorithms will also rush out creating various kinds of859potential runs and fire sales. We are quite likely to860experience, as Dr. Foster said, various forms of AI agentic861runs on our banks. What happened to Silicon Valley Bank will862seem slow by comparison.863    Bank capital protects against insolvency. This is the loss-864absorbing buffer. If the world is becoming more unstable, we865should want our big banks to have more loss-absorbing capital.866Instead, the regulators are pushing in a reckless manner toward867allowing less capital.868    In summary, capital of the largest banks is eroding. This869undermines our system and our economy. It makes us weaker in870the global economy. In 2008, we barely had enough capital in871our biggest banks. Since 2008, the world has become more872unstable--pandemic, global financial crisis, rise of China, AI.873    The U.S. economy needs a resilient banking system. The874regulators are failing you and failing the American people when875they allow leverage to rise to pre-2008 levels.876    Finally, I would like to quote from the National Security877Strategy just released by the White House. Quote starts, We878want a resilient national infrastructure that can withstand879natural disasters, resist and thwart foreign threats, and880prevent or mitigate any events that might harm the American881people or disrupt the American economy. No adversary or danger882should be able to hold America at risk, end quote.883    To achieve this goal, as stated in this document, you need884more loss-absorbing equity capital in the bank system, not885less.886    Thank you very much.887888    [The prepared statement of Mr. Johnson follows:]889    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]890891    Chairman Barr. Thank you, Mr. Johnson.892    We are now going to turn to member questions. I now893recognize myself for 5 minutes for questioning.894    Mrs. Eversole, the word of the day in Washington is895affordability and making life easier for the American people by896lowering the cost of living. How can regulatory tailoring and897enhancing U.S. bank competitiveness through right-sizing the898capital framework lower the cost of capital and help lower the899cost of living for Americans?900    Mrs. Eversole. Mr. Chairman, thank you very much.901Affordability is a huge issue and I think, as it relates to902bank capital, one size does not fit all. So we have a903sophisticated system. In fact, the best, most highly liquid,904vibrant capital markets in the world, and we have the ability905to make sure that we get it right. I appreciate the fact that906this hearing is happening today.907    The Basel III Endgame, getting--making sure we get that908right is a perfect example. If we can have--if we can get that909done, the impacts go to small businesses, Main Street through910lower cost of borrowing, and that helps drive the economy.911    Chairman Barr. Yes. Getting this wrong and overregulation912of the banking sector will drive up the cost of credit, period.913That is a simple and absolutely true fact, and that is why we914have got to get this right.915    Mr. Flood, miscalibrated capital rules are extremely916burdensome on small institutions that keep credit flowing to917Main Street America community, and reasonable banks are often918the only lenders serving rural towns, family farms, small919manufacturers, and first-time home buyers.920    What are the downstream effects of inflated risk weights921under the Biden Administration's Basel III Endgame that would922affect community and regional banks' ability to provide923mortgages, agricultural loans, and small business credit?924    Mr. Flood. Thank you for the question. Mr. Barr, when we925surveyed those 300 corporate treasurers, we found that most926small businesses use banks for their financing. They use an927average of four banks. As I think you can see from our928analysis, the number of banks in the country is decreasing.929    So the simple answer is, A, your constituency will either930see increased costs or lack of availability of credit at banks.931Second, we also--or, third, we also know that increased932compliance costs affect every bank, and we have seen how that933has led to consolidation at the lowest levels.934    Finally, community banks like to replenish their capital.935How do they do that? They sell loans or products to bigger936banks. If those bigger banks have increased costs or increased937risk weights for those same products, they are going to charge938more to your smaller bank. It is a downstream effect.939    Chairman Barr. Yes. This is trickle-down regulation. It is940not just about the big banks. It is about community banks and941making sure that the capital framework does not inadvertently942shrink access to credit in underserved markets.943    Mrs. Tahyar, in 2023 when the Vice Chair Barr--the other944Barr--proposed the Basel III Endgame, it received bipartisan945and nearly universal criticism from lawmakers and the public.946In fact, more than 97 percent of the comments on the proposal947were negative, with more than 80 percent of those comments948submitted by interested parties outside of the banking sector.949    The message was clear that we needed a reproposed endgame950but even under the reproposed endgame, the expectation is that951U.S. banks will face materially higher risk-weighted assets952from revised credit market and operational risk frameworks, yet953the leverage ratio remains unchanged, which creates a potential954for double counting of capital requirements.955    How should regulators appropriately account for reforms to956Basel III Endgame to ensure that bank leverage ratios do not957bind institutions during low-risk, high-liquidity environments?958    Mrs. Tahyar. Double counting is a real issue, Chairman959Barr, and I am glad you asked the question.960    I think what happened in 2023 is that the banking961regulators did not do a bottoms-up data-driven analysis, and962currently it is a bottom-up data-driven analysis that is being963promised by the banking regulators. The leverage ratio became964the binding constraint as Treasury markets expanded given the965fiscal situation.966    My own view is that there should be a real rethink of the967leverage ratio which affects, as you know, not just the biggest968banks, but all of the banks.969    Chairman Barr. Thank you.970    Mr. Olmem, final question. As you know, Fed Vice Chair of971Supervision Michelle Bowman has said that the regulatory972thresholds should not be static, and FDIC Acting Chair Travis973Hill recently finalized a rule that seeks to index regulatory974thresholds on a biennial basis.975    I have introduced legislation, the Tailoring and Indexing976Enhanced Regulations (TIER) Act, to ensure that our regulatory977system is not static and that it is designed with growth in978mind, which--while maintaining safety and soundness.979    Can you please speak to the importance of indexing980regulatory thresholds and how this will help ensure banks are981holding appropriate capital that accurately corresponds with982their size, risk, and scope of activities?983    Mr. Olmem. Thank you for that question, Mr. Chairman Barr.984    Put simply, if we do not index the thresholds, eventually985we will not have tailoring because over time, inflation will986move institutions into higher and higher categories.987    Already since 2019, when the categories were adopted, we988have seen inflation run at about 25 percent, nominal gross989domestic product (GDP) is up 30 percent that are already990threatening to put institutions into higher categories simply991because of nominal changes in the economy.992    Chairman Barr. Thank you.993    My time has expired, but I will just note for the record994that when Dr. Foster and I traveled to Basel, Switzerland, it995was interesting to hear the Basel Committee themselves say that996Vice Chair--former Vice Chair Barr's proposal had gold-plated997American capital requirements over and above what they998recommended.999    With that, I will now recognize the ranking member of the1000subcommittee, Dr. Foster, for 5 minutes for questions.1001    Mr. Foster. Well, thank you and thank you for referring to1002our bipartisan trip to visit all the banking centers.1003    It was interesting because there was a lot of anxiety in1004the European banking sector that, despite their lower capital1005requirements, they were being outcompeted by the big banks of1006the United States, so that the argument--I think one of the1007witnesses here referred to it as a trope, that the regulators1008should look at the fact that we are actually increasing market1009share in our--with our giant banks compared to our offshore1010competitors as something that maybe the regulators should not1011look at.1012    I think if we are losing market share, the regulators1013should look at it and the fact that we are increasing market1014share, the regulators should consider in whether our capital1015requirements are too stringent.1016    My biggest worry about this is that we are arguing about1017the last few basis points of capital requirements when the big1018elephant in the room is artificial intelligence, agentic AI,1019and everything that is going to disrupt financial services and1020the businesses that many banks have loaned money to.1021    This is something--I was very disappointed that we had--it1022was a--I guess it was, I think, Mrs. Eversole's testimony when1023she made reference to the commentators on this. You cannot open1024any financial journal or anything without seeing people comment1025on the bursting of the AI bubble and are we really robust1026against that. There is probably no commentator that has not1027opined on that.1028    Yet when we recently wrote a letter to FSOC to say, hey,1029could you please have a look at this? We are unable, frankly,1030to get any of my Republican colleagues to cosign this, and all1031of the Democrats, essentially, signed on to it and so I think1032this is why we created FSOC, to keep--to look around the1033corner.1034    Mr. Johnson, you actually mentioned this in your testimony.1035Could you say a little bit more about what AI could do to the1036stability of our financial system?1037    Mr. Johnson. Yes. I think, Dr. Foster, you are totally1038right, this is the big issue of the day and the days to come.1039We do not know, nobody knows exactly what will be the impact of1040AI on the American economy or on the financial system, but it1041does seem very likely that it will increase volatility, there1042will be relatively few foundation models, there will be1043relatively few big tech players producing those models.1044Everyone will be using some versions, some application of those1045models. So there will be a lot of crowding in terms of spotting1046opportunity and crowding in. So we may well get more run-ups in1047asset prices but also crowding on the way out.1048    So you referred to the run from Silicon Valley Bank which,1049of course, we know was speeded up by social media. No AI was1050involved. AI can make decisions much faster than humans can. So1051once they spot a weakness or a perceived potential insolvency1052because of capital deficiency, it will be seconds, not minutes,1053before the deposits run out the door.1054    Mr. Foster. Yes. Well, in fact, they can respond to rumors.1055Many of the AI--personal AI agents will be under standing1056orders that if you read a rumor out on Reddit that your bank is1057in trouble, get my money the heck out and it will be--things1058like customer loyalty will be a thing of the past.1059    This is not only going to affect banks. It will affect1060every business that depends on customer loyalty, because the1061personal agents are not going to be loyal; they are going to be1062instructed to get the best price, and this is going to squeeze1063the profit margin out of every consumer-facing business in the1064country. There are going to be a lot of loans that will go bad1065because business models will blow up that way. So this is not1066the time to lower capital requirements.1067    This is--in my bipartisan way, I am also wearing a red pin1068here. This is the red pin of the 110th Congress where, under a1069Republican President and under Republican regulators, this pin,1070I had the pleasure of voting for the Troubled Asset Relief1071Program (TARP) and there are situations where the Republicans1072who voted for the lower capital requirements and deregulation1073refused to provide the votes to rescue our economy, and1074rescuing our economy had to be done with Democratic votes.1075    So this is a foundational memory, and many of us on this1076side of the aisle who lived through that. We do not repeat1077history, but it echoes. We are in a situation when we have a1078historically unpopular President once again and regulators who1079are--have this mantra of deregulate, deregulate, deregulate,1080modernize all of the--all of the words--you can read in 2007,1081the exact same mantra.1082    So there are things that make sense. So we have to--1083punishing bank capital because they are holding Treasurys. I1084never thought made sense, and that is the sort of thing we1085could be looking at. The idea of just lowering capital1086requirements in general right now until we understand the1087effect I think is premature.1088    So I would like to thank you all for your testimony. It is1089nice to see that the arguments have not changed in 15 years,1090but the future is coming at us fast, and we should look1091forward, not backward.1092    Thank you.1093    Chairman Barr. The gentleman from Michigan, Mr. Huizenga,1094is now recognized.1095    Mr. Huizenga. Thank you, Chairman Barr and good to see our1096panel again, or most of you, and welcome, Mrs. Eversole.1097    Mr. Flood, I am going to start with you. A lot of1098discussion this morning has been centering around how higher1099capital requirements for financial institutions will be1100harmful. Obviously, not everybody agrees with that on the1101panel, but I happen to agree with that sentiment that it is or1102can be harmful.1103    What is often overlooked, though, from my perspective, is1104Main Street America, and that is really what I am concerned1105about those small businesses that are the backbone of local1106communities that we all represent.1107    I am a small business owner myself. Family is in1108construction. I have lived through the ups and the downs, and1109the downs are tough. We have had to rely on lines of credit. I1110recently actually ended my own line of credit because it was1111costing me while I was not actually accessing it. My business1112partner, my cousin and I, looked at each other and were like,1113well, this makes zero sense.1114    So we have got a lot of issues, as you can see it, as it1115pertains to small businesses but just give us your thoughts on1116how this affects maybe Main Street in a small entrepreneurial1117or, in my case, a third-generation family business.1118    Mr. Flood. Sure. I imagine your business is a private1119business?1120    Mr. Huizenga. Yes. Huizenga Gravel is not a publicly traded1121company, thank goodness, and I have no intention of subjecting1122ourselves to the Securities and Exchange Commission (SEC).1123    Mr. Flood. Well, that puts you at 99 percent of U.S.1124companies.1125    Mr. Huizenga. Yes.1126    Mr. Flood. I will give you three concrete examples. The1127first one was the line of credit, and you have clearly1128experienced that. What surprised me is the risk weighting for1129both the funded and unfunded increase. There is no reason why1130and it goes above gold-plated levels.1131    So you have just said what happens. One, your line of1132credit either gets more expensive or they shrink it. So if you1133need more money, you will have to go get another one, and I am1134sure they would see that as riskier.1135    Mr. Huizenga. Not to mention, by the way, when the1136regulators come in and say, oh, by the way, even though we1137are--we have been banking with the same bank for three1138generations, we are not sure of their credit risk.1139    Mr. Flood. Correct. Simply because--two, simply because you1140are a private company, as an example of excessive capital,1141Basel III Endgame treats you differently. Let us assume that a1142public company has an interest rate of 7 percent and let us1143presume a 12 percent return on capital. That same private1144company is going to have a 10.5 percent interest rate. That is1145how different it is.1146    Then there is the third part, which is--I want to bring up1147something called risk mitigation. It is exactly what it sounds1148like, and we mix that up with derivatives a lot. So now let us1149think about a farmer who wants to mitigate their crops because1150they have seen climate issues. So they go to the bank, and they1151say, hey, I want to buy a hedge from you, and the bank should1152say, that is great, that makes you less risky to me and me less1153risky to you , but somehow, oddly, we have priced that higher.1154    So the hardest thing for our businesses to understand is--1155--1156    Mr. Huizenga. So lowering risk is actually going to cost me1157more than if I had just maintained the status quo?1158    Mr. Flood. Those are some of the confounding things in the1159regs that we have.1160    Mr. Huizenga. Okay. Mrs. Eversole, I want to touch base on1161you. You represent the largest of the banks. Does the current1162framework disadvantage U.S.-based institutions compared to1163their international peers?1164    Mrs. Eversole. Thank you very much, Congressman, for the1165question.1166    Indeed, it does. The fact of the matter is, even if you1167look at something like the G-SIB surcharge, we are twice that1168of our international competitors and I think that we are in----1169    Mr. Huizenga. We just heard that is necessary and maybe we1170do not have enough capital.1171    Mrs. Eversole. Respectfully, I would--I would disagree with1172that premise. I think it is a perfectly appropriate1173conversation to ask the question, is more always better?1174    To your earlier question, it does not--it is not free. It1175comes at a cost, and the cost is borne by consumers, the very1176people that need these----1177    Mr. Huizenga. It is not the banks?1178    Mrs. Eversole. I think from a consumer perspective. You can1179see the cost of credit is increased by higher capital.1180    Mr. Huizenga. Mrs. Tahyar, let me switch slightly on this.1181What are the macro effects on the economy of this one-size-1182fits-all approach?1183    Mrs. Tahyar. Well, I think what it is doing is it is1184leaning us toward the dreaded barbell. I think the statement1185was made that our biggest banks are more competitive than the1186EU banks. That is clearly right. They are outcompeting. If we1187look at the mid-size range banks, say from 10 up to about 2501188or more, they are--they and the community banks are the engines1189of growth for small-and medium-sized enterprises, for religious1190entities, for non-governmental organizations (NGOs) in smaller1191towns, and the macro impact on them--and then we are now at a1192place where we want to have a lot of more credit in the1193heartland of the country--Michigan, where you and I are both1194from--and that is going to be hard to get if we insist on gold-1195plating of capital standards.1196    Mr. Huizenga. Mr. Chairman, I am just afraid that we are1197losing the other end of that barbell with the smaller community1198banks and those regional banks.1199    So with that, I yield back.1200    Chairman Barr. The gentleman yields.1201    The gentlewoman from California, Ms. Waters, is now1202recognized.1203    Ms. Waters. Thank you very much.1204    Professor Johnson, while Republicans may want to roll back1205capital requirements, I think there is a much more important1206and bipartisan policy that Congress should consider.1207    In 2023, after Silicon Valley Bank had the fastest bank run1208in the United States history, many businesses got nervous about1209their payroll accounts being held by smaller banks and moved1210their funds to the mega banks thinking they were too big to1211fail. A year later, a much smaller bank in Oklahoma failed as1212well but their failure was too small for regulators to use1213emergency tools to protect depositors. The failure resulted in1214small businesses, churches, and other customers with more than1215$250,000 to losing some of their money. It was the 37th time1216uninsured depositors lost money in a bank failure since 2007.1217    To sum up, small businesses that banked at Silicon Valley1218Bank were protected, while those that banked at this Oklahoma1219bank lost money. How is that fair?1220    My bill, H.R. 4551, the Employee Paycheck and Small1221Business Protection Act, would address this problem with a1222data-driven approach to expand deposit insurance in a1223deliberate way, considering the benefits and costs to ensure a1224higher threshold is set so community banks and credit unions1225can compete with small business deposits in their communities,1226and those businesses and their workers are better protected.1227    My bill would also provide for emergency transaction1228account guarantee, or TAG, authority allowing the FDIC to1229temporarily insure deposits for up to 9 months without needing1230congressional approval first.1231    I appreciate that Chairman Hill held the hearing to1232consider my bill, and we had a good discussion.1233    Are these reasonable reforms that this committee should act1234on for the benefit of community banks, credit unions, and the1235communities they serve, Mr. Johnson?1236    Mr. Johnson. Yes, Congresswoman. Those are very reasonable,1237highly well-informed proposals, and I do think further study--1238the data-driven approach that you are recommending is exactly1239the right way to go about it.1240    Ms. Waters. Well, thank you very much. We have been in1241considerable discussion, and much of the discussion is around1242how much more should be protected. I hope we get to some1243resolution on it because I think it is very important.1244    Let me move on and talk a little bit about bank capital.1245Professor Johnson, over the course of our Nation's history, we1246have routinely seen banks fail due to capital inadequacy,1247whether it was the savings and loan crisis of the 1980s and12481990s or the 2008 global financial crisis that cost our economy1249trillions of dollars and cost millions of families their jobs,1250homes, and life savings. Moreover, research shows that better1251capitalized banks lend more, including in times of stress,1252compared to weak banks that lend less.1253    Would you briefly discuss why strong capital requirements1254are so important and who suffers when capital levels are1255reduced too much?1256    Mr. Johnson. Capital levels are important, Congresswoman,1257because that is the buffer against losses. When an individual1258bank is in trouble and faces potential insolvency, that is what1259causes a potential bank run. If those fears are spread across1260the broader economy, then you have a financial crisis just like1261the one we experienced in 2008 and that is devastating to small1262businesses, that is devastating to communities everywhere. The1263costs of that for economic growth are absolutely, absolutely1264enormous.1265    So bank capital is a way that we attempt to reduce those1266risks. You cannot reduce them to zero, but we attempt to reduce1267the risk of devastating economic collapse.1268    Ms. Waters. Well, I want you to know that they tell us that1269if you require too much capital, we will not have the money to1270lend to all of the small businesses that need money. Yet we do1271not see any real loans going to small businesses.1272    What do you know about that?1273    Mr. Johnson. Well, I think providing credit to small1274businesses is tremendously important, and that is why we have1275the Federal Reserve, and that is why the Federal Reserve sets1276interest rates and otherwise determines monetary policy,1277because they are affecting credit conditions. That is their1278responsibility.1279    I think what we need from the banks is to retain strong1280community banks, strong credit unions, exactly with a deposit1281guarantee extension that you are proposing and the TAG. I think1282that combination will strengthen lending to those communities.1283    If you are just going--providing support in crisis to too-1284big-to-fail banks--which is why they have a low cost of debt--1285that is not helping communities across America.1286    Ms. Waters. Well, thank you very much.1287    We had a markup on the floor yesterday, Incentivizing New1288Ventures and Economic Strength Through Capital Formation1289(INVEST) Act, and we were talking about capital formation. At1290some point in time, we need to talk about the responsibility of1291the banks instead of looking all over the world for more1292capital for small banks.1293    I yield back.1294    Chairman Barr. The gentlelady's time has expired.1295    The gentleman from Texas, Mr. Williams, is now recognized.1296    Mr. Williams of Texas. Thank you, Mr. Chair, and thank all1297of you for being here today. Good to see my friends.1298    I am a small business owner in the great State of Texas. I1299am a car dealer, and the previous Basel III Endgame proposal1300would have pushed capital standards well beyond what a strong,1301stable banking system requires. As chairman of the Small1302Business Committee here in Congress, I am concerned that the1303proposal would limit credit access for small businesses,1304especially giving differing risk weights for loans to public1305versus nonpublic firms.1306    So, Mrs. Eversole, what changes to the Basel III proposal1307would ensure equal credit access for small businesses like1308mine, or of all sizes, and why is this so important to get it1309right?1310    Mrs. Eversole. Congressman, thank you very much for your1311question.1312    Look, you have outlined it correctly. We need to update and1313change the risk weighting because there should not be a thumb1314on the scale for public companies versus private companies.1315There is an impact on more capital on the end users. What we1316need to do is ensure that we continue to have a strong economy,1317and you know full well that starts with small businesses.1318    So we need to--we look forward to seeing that proposal. We1319appreciate the leadership of the vice chairman of supervision1320at the Fed, and we look forward to getting that right.1321    Mr. Williams of Texas. Ninety-nine percent of the1322businesses are small right now in America.1323    Mr. Flood, when regulators raise capital requirements,1324banks are forced to redirect more of their balance sheet toward1325meeting these requirements instead of supporting new lending--1326we have been talking about that--and that shift reduces the1327pool of credit available to small businesses that rely on1328steady access for financing day-to-day operations and growth,1329needing to mention payrolls. Even modest increases in required1330capital can drastically change a bank's lending capacity,1331tightening credit exactly where it is needed most.1332    So for a small business trying to renew a line of credit or1333finance equipment, how directly would these higher capital1334changes translate into fewer dollars available to lend to the1335main thing we are talking about, Main Street America?1336    Mr. Flood. Great question. Just to give you an idea, for1337the drawn part--just using, again, Basel III Endgame as example1338of excessive capital--for the drawn part of your line of1339capital, the risk weighting increases by 10 percent, again,1340above and beyond global standards. Oddly, for the undrawn part,1341it goes from 20 to 50 percent.1342    So even for the money you are not using, it increases by 301343percent. So likely your line shrinks or you pay more.1344    Mr. Williams of Texas. Mrs. Tahyar, when government rules1345and regulations become overly complex, banks must dedicate1346significant time and effort to compliance rather than serving1347borrowers and strengthening their businesses, sometimes keeps1348you from making the loan. This can be especially challenging1349for institutions competing in global markets where other banks1350may face simpler or more modernized frameworks, and these1351burdens can affect everything from product development to long-1352term strategic planning.1353    So my question to you, Mrs. Tahyar, does increasing the1354complexity of the Federal framework force U.S. banks to divert1355resources away from innovation, technology, and customer1356service, and does, at the end of the day, this reduce their1357ability to compete internationally?1358    Mrs. Tahyar. Yes, sir, it does. In fact, if we look back,1359there are many wonderful changes that came out of the financial1360crisis, but the intense internal investment at banks in1361compliance personnel, risk personnel, technology to support1362them--and the same thing happening at the regulators--has1363massively increased complexity in the system.1364    Makes it harder for Congress to engage in appropriate1365oversight, and AI may well change these things, but AI is1366something that we are going to have to look at carefully, and1367it needs to be controlled.1368    It is just so hard to get the full weight of the internal1369bureaucracies that have been created at the banks, which just1370take away from the main mission.1371    If I may, one minor, just quick comment. Capital absorbs1372losses, but it is not liquidity. A deposit run, which I agree,1373AI is going to make riskier, that is not going to be capital1374absorbing that loss. That is liquidity regulation or deposit1375insurance. Capital does not solve liquidity.1376    Mr. Williams of Texas. Main Street America, keep it simple.1377Let it grow, employ people, pay taxes.1378    I yield my time back. Thank you.1379    Chairman Barr. The gentlewoman from New York, Ms.1380Velazquez, is now recognized.1381    Ms. Velazquez. Thank you, Mr. Chairman.1382    Mr. Johnson, I heard discussion this morning about1383affordability. I am glad to hear this because I never thought1384that it was a hoax.1385    Can you talk about affordability for working class families1386in times of economic stress if the banks fail?1387    Mr. Johnson. Absolutely, Congresswoman. So I think it is1388one of the great tragedies actually of our generation, the1389current America, that we went through this massive financial1390crisis in 2008, that was absolutely devastating to communities.1391    It destroyed businesses. It completely disrupted the1392housing market. Many of the problems that we are struggling1393with today in terms of providing goods through competition and1394at reasonable prices with reasonable supplies, are because of1395that financial crisis.1396    We did not build 4 million housing units after the crisis,1397and we have never built them, Congresswoman. We have never1398caught up.1399    So for ordinary Main Street America, the financial crisis1400of 2008 was absolutely devastating and when we say there is a1401bailout, a bailout was provided--let us be very clear--it was a1402bailout to the creditors, particularly of large banks.1403    The shareholders got a pretty good deal too, but the1404workers across the economy, the people who run nonfinancial1405businesses, the people outside of the financial sector were1406crushed. They were crushed because our banks took on too much1407risk. They did not have enough capital. We did not have the1408kind of protection that Chairwoman Waters was talking about in1409terms of the deposit insurance, not sufficiently.1410    That combination is absolutely toxic to ordinary Americans,1411and we see it now reflected exactly in today's affordability1412crisis.1413    Ms. Velazquez. We should not forget the lessons of COVID-141419. Banks were sitting in capital, trillions of dollars in1415capital reserve, and yet, small businesses were not getting1416loans.1417    It was Ranking Member Maxine Waters, myself, and Speaker1418Pelosi who called the Secretary of the Treasury, and we put a1419set-aside of $60 billion to be lent to underserved communities.1420    Professor Johnson, you testified before this subcommittee1421last February. As part of your testimony, you stated, ``Over1422the business credit cycle, well-capitalized banks are better1423able to sustain lending than banks with relatively little1424capital, that fund themselves with more debt relative to1425equity.''1426    Can you explain this statement, and what does the research1427tell us?1428    Mr. Johnson. Well, the research and the practical1429experience, and what we have seen from around the world over a1430hundred years, is that when investors are concerned that a bank1431is deficient in capital, when they think there is a probability1432of insolvency--that is what happened with Silicon Bank, there1433was concern about insolvency; then you get a run that is again1434what happened in Silicon Valley Bank; and then the run spreads1435across other supposedly similar institutions.1436    At the moment, humans make those decisions, but as Dr.1437Foster said, very soon it is going to be agentic AI making that1438kind of decision. So then we have concerns about insolvency1439becoming a systemwide run.1440    If we do not have adequate tools, the authorities do not1441have adequate tools to respond to that, then you have a major1442financial crisis as we saw in 2008.1443    So the best way, Congresswoman, to withstand that, the best1444way to ensure the kind of national security that the White1445House is talking about, is precisely to have a well-1446capitalized, resilient banking system to prevent this from1447happening.1448    Ms. Velazquez. Is it not true that even after the first1449part of the Basel III capital regime was implemented in 2016,1450U.S. banks continued to lend and make record profits while the1451economy continued to grow?1452    Mr. Johnson. Absolutely, Congresswoman. I am looking here1453at the data provided, or compiled, by the Kansas City Fed, and1454we can see that--exactly when you are discussing, in the mid-14552010s--there was a lot less leverage in the big banks than1456there is today.1457    By the way, the smaller community banks have maintained1458less leverage throughout this period than the big banks. That1459is their choice. That is not what is forced on by regulation.1460That is sensible, big--big practice.1461    It is the big banks that have a large implicit guarantee1462from the U.S. taxpayer. That is what ``too big to fail'' means.1463Their debt is subsidized implicitly by the American taxpayer.1464That is ``too big to fail.''1465    They, of course, want as much leverage as they can get,1466because their debt is super cheap because of the subsidy that1467they get from the U.S. Government.1468    Ms. Velazquez. Thank you. I yield back.1469    Chairman Barr. The gentleman from Tennessee, Mr. Rose, is1470now recognized for 5 minutes.1471    Mr. Rose. I thank you, Chairman Barr and Ranking Member1472Foster, for holding this important hearing, and thank you to1473all of our witnesses for taking time to be with us today and1474lend your expertise.1475    Mr. Olmem, the 2023 Basel III Endgame proposal would have1476raised capital requirements by 16 percent on average, with some1477banks seeing increases over 20 percent. The proposal received1478overwhelming criticism and was ultimately withdrawn.1479    As regulators prepare a revised proposal, what are the most1480important principles they should follow to ensure the final1481rule appropriately balances risk weighting with the statutory1482mandate from Congress to tailor requirements based on bank size1483and risk profile?1484    Mr. Olmem. Thank you for that question. Well, first of all,1485making sure that the risk weights are based on the best1486available data. Capital should correspond to risk. That is the1487first one.1488    Two is simplicity. Capital requirements have become simply1489too complex and hard to really understand. I think it makes it,1490as Margaret was referring to, hard for the public to understand1491even what capital requirements are. It makes it very difficult1492for Congress to evaluate and also banks to comply with. So1493making them simpler is better.1494    Certainly many banks are complex institutions, and there is1495a limit on how much simplicity we can get out of the system,1496but certainly any efforts in that direction are beneficial.1497    I would also note too that it is really important to take a1498view of the totality of all the regulations that are going on.1499I think that is one of the things that I think Mr. Johnson1500misses, is that this is not 2008, and I think back in a way, I1501would have shared some of his concerns about capitalization1502levels but that is not where we are today.1503    We have, in addition to all the reforms that have happened1504over the last 15 years--and we need to make sure they all work1505together--we have stress testing now, we have additional1506leverage ratios, we have the Volcker Rule, risk retention1507rules, right? We have a 2,000-page Dodd-Frank Act of rules on1508banks that have substantially changed their risk profiles.1509    What the regulators are really doing right now is trying to1510make it all work together in a more efficient way so that the1511banking system is certainly safe and sound, but that it is--the1512distortions in credit allocation that are occurring because of1513the lack of coordination amongst this system, are diminished.1514    Mr. Rose. Thank you.1515    Mr. Flood, increased capital requirements have already1516driven banks out of certain business lines. Residential1517mortgages dropped from 81 percent bank origination in 2007, to1518just 39 percent by 2022.1519    In your testimony, you discuss how the original Basel III1520Endgame would have particularly affected lines of credit and1521warehouse lending. Can you explain what happens to credit1522availability and pricing when capital requirements increase for1523these specific products?1524    Mr. Flood. Absolutely. Couple things to think about. Again,1525when we Basel III Endgame which, in many cases, goes above and1526beyond global standards, with a line of credit--I think I had1527explained before--the funded part goes from 100 to 110 percent,1528and the unfunded goes--risk weighting moves from 20 to 501529percent.1530    So two things will happen. You either will pay more for1531your line of credit, or you will have a smaller line of credit1532so that when you need more, you will have to get another and1533pay more.1534    Two--and, again, I will keep repeating this--a private1535company, 99 percent will pay more than a public company. My1536example again is, if you take a loan to the public company at 71537percent and you assume a 12 percent return on equity, the1538private company is going to pay a 10 percent loan. It is a1539significant difference.1540    Finally, the last one I would say is, there is a 10 percent1541capital charge on all retail. So put credit cards on the list,1542put autos on the list, and put mortgages on the list, and they1543all increase.1544    Mr. Rose. Wow. Thank you.1545    Mr. Olmem, you make the point in your testimony that1546capital is critically important, but it is not the only option1547in the regulatory tool kit. You note in your testimony that the1548banking regulators are undertaking important reforms to the1549supervisory process.1550    Why is getting supervision right just as important as1551getting capital requirements right, and how do these work1552together to promote both safety and soundness and economic1553growth?1554    Mr. Olmem. Thank you for that important question.1555Supervision can spot those risks that are not on the balance1556sheet, right? It is the way supervisors can exercise judgment1557and understand how a bank, its management, is addressing risks.1558    The only way you can see that is knowing who the bank1559managers are, understanding their strategies, and working with1560them to understand how they are managing those risks.1561    I think if you look at any major bank fail, supervision is1562usually at the core of the problems. Supervision also is an1563effective and efficient way to make sure that banks are1564properly regulated without excessive regulation.1565    Mr. Rose. Thank you. My time is expired. I yield back.1566    Chairman Barr. The gentleman's time is expired.1567    The gentleman from Georgia, Mr. Scott, is now recognized.1568    Mr. Scott. Thank you, Mr. Chairman.1569    Ladies and gentlemen, this is a very important hearing but1570especially to our farmers--sectors like agriculture, that rely1571heavily on access to credit, risk management tools, and1572functioning derivative markets.1573    Mrs. Eversole, let me come to you first. Our farmers1574operate in a world of volatility--from supply chain1575disruptions, fluctuating global demands, and extreme weather.1576    There is no other sector of our economy that is as serious1577in terms of reseeing these obstacles. So let me just ask you1578this: Large banks play a key role in providing risk management1579for agriculture producers through futures options and swaps.1580Now, if Basel III makes it less attractive for our banks to1581provide these hedging services, what will be the direct effect1582on our farmers?1583    Mrs. Eversole. Congressman, thank you very much for the1584question. I am also from the great State of Georgia, so I1585deeply appreciate the concern about farmers here.1586    I mean, the reality is, it is going to make it more1587expensive and--I mean, you know very well how hard it is to1588manage risk. Is there enough rain, how is the--and that all has1589an impact on the crops.1590    The ability to manage risk and understand where you are1591coming out of this, the Basel III Endgame has an impact on1592that, and it is not just about the farmers. It is about where1593those products go. They end up on store shelves.1594    It also impacts the price of fuel, when you think about1595biofuels and ethanol and so, we need to get this right,1596Congressman.1597    Mr. Scott. We have a good audience listening.1598    Do you anticipate certain particular products would become1599less available to our farmers, particularly customized or1600longer-term derivatives?1601    Mrs. Eversole. If we do not do this right, they will impact1602not only the cost but also the availability, and so we look1603forward to making sure that we get this proposal right and1604provide the certainty to America's farmers, especially in the1605great State of Georgia.1606    Mr. Scott. Absolutely and go, Dogs.1607    Mrs. Eversole. Go, Dogs. Thank you so much, sir.1608    Mr. Scott. Excuse me. Cold.1609    Let me turn to you, Mr. Johnson. Do you believe that1610farmers, businesses, face any disadvantages if foreign1611competitors, operating under slightly different capital rules,1612have lower hedging costs?1613    Mr. Johnson. I think, Congressman, it is very important to1614study this question, and to examine exactly what kinds of1615market facilities and also subsidies are available to farmers1616and other competitors in other parts of the world.1617    Sure, if there are unfair forms of competition, those1618should be looked at, and there are various, as you know, legal1619and regulatory remedies available under those circumstances.1620    However, Congressman, I do think that having a strong,1621resilient banking system of our own, including community banks,1622including credit unions, including those which are just focused1623on farmers, is incredibly important.1624    When I look at how much capital those institutions choose1625to have--they choose to have it; this is not what they are1626required to have--they have substantially less leverage than1627the ``too big to fail'' banks.1628    So I think that we have some fantastic and very important1629financial institutions serving those communities, Congressman,1630and I think we should aim to strengthen them. They are,1631themselves, choosing not to over-leverage, which I really1632commend them.1633    Mr. Scott. Finally, will U.S. farmers and businesses face1634any disadvantages from these foreign countries?1635    Mr. Johnson. Unfair foreign competition is a problem,1636Congressman, and it needs to be addressed in a careful, well-1637regulated way, and we have a long tradition of doing that in1638the United States.1639    I do think, though, that what we have currently, as a1640result of the reforms after 2008, with regard to strengthening1641the financial system and lowering the leverage--at least we1642lowered it until 2016, 2018--I think that was helpful to1643farmers. Allowing the big banks to become over-leveraged is not1644helpful to farmers.1645    Mr. Scott. Thank you very much.1646    Chairman Barr. The gentleman from Georgia's time is1647expired. I will just have to say, as the husband of a Georgia1648Bulldog, even though I am a Kentucky Wildcat, to you and Mrs.1649Eversole, go, Dogs.1650    Mr. Scott. Way to go.1651    Chairman Barr. The gentlewoman from California, Mrs. Kim,1652is now recognized for 5 minutes.1653    Mrs. Kim. Thank you, Chairman and Ranking Member, for1654hosting today's hearing, and I want to thank our witnesses for1655being here. Thank you.1656    As you may know, I have been keenly focused on modernizing1657the community bank leverage ratio to uplift our community1658banks. According to prudential regulators, around 85 percent of1659our community banks qualify for community bank leverage ratio1660(CBLR), yet only 45 percent of them actually use it.1661    That is why I introduced Community Bank Leverage1662Improvement and Flexibility for Transparency (LIFT) Act that1663will modernize CBLR, to ensure that more community banks in1664California are focused on consumers, rather than regulatory red1665tape.1666    Mrs. Tahyar, when you look at tailoring, do you agree that1667there is still more fine-tuning to be done regarding the1668community bank leverage ratio?1669    Mrs. Tahyar. Yes, I think there is. The vice chair and the1670board have come out with a proposal, as you know, which would1671take it to 8 percent and also importantly, would give a longer,1672four-credit, grace period.1673    It is not entirely clear to me exactly why only 40 percent1674of the community banks could benefit from it, but I think the1675cliff effect of a two-quarter grace period, which for a1676community bank is way, way, way, too swift, is part of the1677concern there.1678    I also think in terms of tailoring, picking up on something1679that Andrew said, with growth in the economy and inflation, in1680a tailored system, that growth and that inflation will simply1681have banks grow into the next asset threshold when they really1682should not be there.1683    Mrs. Kim. Thank you.1684    Today we heard a lot about the leverage of large banks1685today. So Mrs. Tahyar, can you explain how low-risk activities1686like Treasury market intermediation are impacted by binding1687leverage requirements?1688    Mrs. Tahyar. So--and this was obviously worse before the1689recent change in the enhanced supplementary leverage ratio1690(eSLR), but it is still part of the leverage ratio.1691    The market for Treasurys has simply exploded with the1692increase in the deficit. That means that you have an impact on1693the market for Treasurys because those entities that would have1694been trading in Treasurys, if the leverage ratio becomes1695binding on them, they are going to stay out of the Treasury1696market.1697    Now we are more dependent on non-banks or on foreign actors1698in the market for Treasurys. Maybe stablecoins will eventually1699make a difference. I know that is part of the hope, but what we1700have experienced in some of the kerfuffles in the Treasury1701market is certainly bound up with the fact that the classic1702players just have not been playing the way that they used to.1703    Mrs. Kim. Thank you.1704    As we continue to evaluate tailoring and capital1705requirements, the impact on small businesses must be kept top1706of mind. Many small businesses rely on affordable and reliable1707credit from regulated banks to grow and manage day-to-day1708operations.1709    However, increased capital requirements, such as those1710proposed under Basel III and through the G-SIB surcharge, can1711raise the cost of lending and reduce credit availability.1712    I want to ask you, Mrs. Eversole--yes, Eversole--how are1713these capital rules impacting small businesses' ability to1714access credit today, and what adjustments should regulators1715consider to ensuring that credit remains affordable for Main1716Street without compromising safety and soundness?1717    Mrs. Eversole. Congresswoman, thank you very much for the1718question. I would note that my member companies have more than1719$100 billion in outstanding loans to small businesses today,1720and that is really important because we know that small1721businesses are the economic engine for growth in this country.1722    The Basel III Endgame, as proposed in 2023, would have had1723inappropriate risk weighting that would have impacted small1724businesses negatively through the form of higher capital.1725    I think, as I have mentioned today, higher capital is not1726always better, and it comes at a cost. I think the question1727about getting this right, making sure that in the proposal we1728look forward to from the Federal Reserve, hopefully as soon as1729possible, getting it right really matters.1730    We want to make sure that America's small businesses are1731protected, but also can borrow money at a fair cost, so they1732can get to the business of growing their businesses.1733    Mrs. Kim. I could not agree with you more. Thank you.1734    Let us shift gears now. In today's era of banking, it1735appears that the success of your bank will not be dictated by1736innovation or competitive product offerings but rather by how1737you can handle the compliances costs as your financial1738institution continues to grow.1739    We are almost forced to either defend Dodd-Frank as banks1740fail around us, or we find ways to tailor regulations to serve1741the dynamic economic rules that these financial institutions1742play.1743    I am running out of time, but hopefully you will have time1744to answer this, Mr. Olmem.1745    Has Dodd-Frank created the accurate, precise regulation1746that was expected, or has it created more regulation with1747little or to no benefit?1748    Chairman Barr. Mr. Olmem, you are going to have to submit1749that answer in writing. The gentlewoman's time is expired.1750    Mrs. Kim. Thank you.1751    Chairman Barr. The gentleman from California, Mr. Sherman,1752is now recognized.1753    Mr. Sherman. Thank you, Mr. Chairman. I think we all agree,1754if capital standards are too low, we face the risk of needing1755bailouts. If they are too high, our economy is smaller than it1756otherwise would be, but we should also agree that if you1757discriminate against certain borrowers and help other1758borrowers, you pick winners and losers.1759    What is worse is if you pick the wrong winners and the1760wrong losers. Banking is too important to just focus on the1761bank. It allocates capital in a society dedicated to1762capitalism.1763    Now, there is real risk in loaning money to Jack's Pizzeria1764in Tarzana, and we should state that fairly and have adequate1765reserves but we should not understate that risk just because1766the pizza is delicious. We should not understate that risk just1767because we love small business.1768    When we look at Basel III's current configuration, we see a1769system designed to oppress, to discriminate against small1770business, new home buyers, and all home buyers, and U.S.1771taxpayers, for absolutely irrational reasons except for the1772fact that the people in Basel all just feel really comfortable1773with giant corporations and their long-term bonds.1774    The first is to home buyers. First, there is a proposal1775here to increase the risk weight beyond the Basel levels for1776all home mortgages. Then, as I have commented before in this1777room, they ignore private mortgage insurance.1778    So you have a system that discriminates against all home1779buyers, and then doubly discriminates against the first-time1780home buyers with the low downpayment that needs the private1781mortgage insurance.1782    I have heard no defense of this. It is just people who jump1783up and down and say Basel, Basel, wonderful town, let us just1784do what is in the document, do not read it too carefully.1785    Then we have intentional discrimination against small1786businesses in two ways: As Mr. Flood points out, if it is a1787public company, we discriminate in favor of them and against1788the private company.1789    Second, small businesses do not pose an interest rate risk1790because they tend to have floating rates or short-term loans.1791    The 30-year fixed-rate bond, is discriminated in favor of1792because we do not mark-to-market. Had we done that, we would1793have realized that Silicon Valley Bank had $17 trillion in1794unrealized losses.1795    Even after that, we have got a system that discriminates1796against the small business and in favor of the competing 30-1797year corporate bond that is not mark-to-market.1798    Then Mrs. Tahyar says we should also discriminate in favor1799of the crypto billionaire bubble creators. I just say, you do1800not have to be a genius to recognize that crypto assets are1801very volatile and then in the area of long-term bonds, we1802discriminate in favor of the corporate bond and against the1803Treasury bond by treating them both the same, even though the1804Treasury bond does not have the risk and the corporate bond1805does.1806    So we have a system here, designed to unfairly discriminate1807against home buyers, particularly first-time home buyers, small1808business as opposed to publicly traded, big business, and the1809U.S. Government, its taxpayers. Gee, what could go--what is the1810matter with that?1811    Mrs. Eversole, the Basel III Endgame proposal for 20231812included higher risk weights for mortgages than recommended by1813the Basel Committee. As I pointed out, it discriminates in1814favor of publicly traded companies.1815    How do your banks take capital requirements into1816consideration when making a small business loan or a home loan,1817and would the consequences of this be fewer loans for home1818buyers and small businesses?1819    Mrs. Eversole. Congressman, you said it very well. The1820impact is straightforward. It would reduce the amount of loans1821made, and it would make the ones that are made more expensive.1822    It was a bad, flawed proposal, and we need to see--we look1823forward to seeing the re-proposal that we expect as soon as1824possible.1825    Mr. Sherman. Mr. Olmem, we have got a system that pretty1826much ignores private mortgage insurance (PMI). It does not1827follow the Federal Housing Finance Agency (FHFA) Enterprise1828Regulatory Capital Framework that Fannie and Freddie use.1829    What should the Basel--what should this regulation do with1830regard to mortgages?1831    Mr. Olmem. I think the risk weights that were originally1832put in the original proposal were too high and need to be1833revised.1834    Mr. Sherman. Thank you.1835    Chairman Barr. The gentleman's time is expired.1836    We are going to just go out of order just for a minute for1837a parliamentary request from the gentleman from Texas.1838    Mr. Green. Thank you, Mr. Chairman. Mr. Chairman, because I1839have three hearings taking place today, I ask unanimous consent1840that I be allowed to place questions in the record for the1841witnesses, and I beg that I be excused to take care of the many1842things that I have to do.1843    Chairman Barr. Without objection----1844    Mr. Green. Thank you very much.1845    Chairman Barr [continuing]. so ordered.1846    The gentleman from Georgia, Mr. Loudermilk--a lot of1847Georgia Bulldogs here today--the gentleman from Georgia, Mr.1848Loudermilk, is now recognized for 5 minutes.1849    Mr. Loudermilk. Well, thank you, Mr. Chairman, and I1850appreciate everybody being here today.1851    While all of America is likely not glued to their1852television watching this hearing, as they may be some other1853high-profile hearings. Nonetheless, the subject matter that we1854are discussing here is extremely important to all Americans and1855their livelihood and their financial stability going forward,1856so.1857    For too long, financial regulators have taken one-size-1858fits-all approach to regulation, applying the same regulatory1859standards to small-and mid-sized institutions as they would to1860large and well-resourced institutions.1861    While the biggest banks often have the resources to comply1862with the regulations, small firms and even some mid-size firms1863might struggle to meet these same regulatory requirements.1864    So I am glad to see us focusing on this topic, and I am1865proud of the work that this committee and the Trump1866Administration are doing to right-size regulations on financial1867institutions of all sizes.1868    Mrs. Tahyar, I have a bill entitled the Taking Account of1869Institutions with Low Operation Risk (TAILOR) Act, which would1870require that all future regulations be tailored to the risk1871profile of the regulated institution.1872    Are there other proposals out there that you believe would1873provide the right balance between safety and soundness and1874minimizing harm to community banks?1875    Mrs. Tahyar. Yes, I think so. There are a number of1876challenges that community and smaller banks face, among which1877is succession planning, because many of them are family owned--1878they are private companies--and making kind of M&A applications1879easier and more certain, I think would be helpful for community1880banks.1881    We do not want the barbell, but we have got 4,000 banks and18824,000 credit unions. So some degree of consolidation seems to1883me to be fruitful.1884    Other elements on tailoring are indexing the tailoring, and1885then I think the shift that the vice chair has put in place,1886away from process-oriented supervision, which just takes so1887much--a community bank may have 15 people at the bank. A1888regional bank is not going to have the hundreds of thousands1889that a large bank has.1890    So moving away from process checklists just to show things1891just to show things, minutes of meetings that--so that someone1892can look at them and check whether they did things. I think we1893will focus banks back on what they need to do and will focus1894the supervisors on material, financial, and operational risks.1895    Mr. Loudermilk. I have had community bankers tell us that1896what they face is a death of a thousand cuts----1897    Mrs. Tahyar. Yes.1898    Mr. Loudermilk [continuing]. because of the requirements.1899    With that in mind, are community banks at a structural1900disadvantage compared to large banks, who can have teams of1901compliance specialists when implementing these complex capital1902frameworks?1903    Mrs. Tahyar. They are, and I think that is what the1904community bank leverage ratio is about, which has not been1905taken up as much as it could be. It is very much a structural1906disadvantage for smaller banks.1907    To make a mortgage the paperwork looks like this.1908    Mr. Loudermilk. Right, right.1909    Mrs. Tahyar. That was not the way it was before, but1910mortgages were what community banks did in the small1911communities. They knew the people. They could make the1912mortgages.1913    Now, it has been much, much harder, since Dodd-Frank, for1914community banks to make mortgages, and we have seen this flow1915out of mortgages from the banking sector to the non-banking1916sector.1917    Mr. Loudermilk. That is interesting you bring up mortgages.1918One of the first bills that I passed after coming on this1919committee was to exempt institutions that have zero-interest1920mortgages, such as the nonprofits, Habitat for Humanity, to1921exempt them from this massive regulatory framework just to1922issue a zero-interest mortgage anyhow.1923    In your testimony, you write that any capital framework1924will need updating and renewal from time to time as markets and1925technology change.1926    Do you have any thoughts as to how the framework like that1927should be structured and how often those reviews should occur?1928    Mrs. Tahyar. Well, under the regulations, they are supposed1929to be reviewed every 10 years, and that is very much not1930honored and that is for all of the banking regulations.1931    I do not want to front-run whatever we are going to see a1932Basel III proposal from the banking regulators--quite soon, I1933hope--and so I do not want to make suggestions about what1934should happen in the onward, onward.1935    What I did want to open folks' minds to is, we call it1936endgame----1937    Mr. Loudermilk. Right.1938    Mrs. Tahyar [continuing]. but it is not the end of the1939game. There have been mentions of agentic AI and various other1940changes. I just want us to keep in mind that there is no1941endgame. There is no end to keeping up with what is happening1942in technology in the market.1943    Mr. Loudermilk. Right.1944    Thank you, Mr. Chairman. I yield back.1945    Chairman Barr. The gentleman yields back.1946    The gentleman from Massachusetts, Mr. Lynch, is now1947recognized for 5 minutes.1948    Mr. Lynch. Thank you very much, Mr. Chairman. I want to1949thank the witnesses for your help this morning.1950    Mr. Johnson, earlier Mr. Olmem said, correctly, ``We are1951not in 2008.'' However, I was here in 2008 on this committee,1952and so we had--the reason we are not in 2008 is because of1953Dodd-Frank.1954    We put in enhanced capital requirements. We put in greater1955prudential standards. We stopped the banks from engaging in1956some very risky activity.1957    Now, if you listen to Michelle Bowman, the vice chair of1958the Fed for supervision, we are seeing a market change. We are1959moving away from those--the more demanding stress tests that we1960put in place. We are relaxing--well, there is a recommendation1961to relax the supplemental leverage ratio. We are not doing--1962like I said, we are not doing the stress testing, and again,1963those prudential standards are dropping.1964    With all of that--let me also add, Vice Chair Bowman also1965gave a speech in Madrid last month where she said that banks1966should be able to compete with non-banks in cryptocurrencies1967and digital assets, which introduces a whole pile of risk into1968the banking industry.1969    I think we are all in agreement that, as others have1970stated, capital requirements should reflect the risk that is1971being engaged in.1972    So with all that, are we not heading back toward 2008?1973    Mr. Johnson. Well, we are heading back towards a financial1974crisis of the magnitude or bigger than 2008, absolutely,1975Congressman. So you are right that Dodd-Frank helped a great1976deal, and that is what reduced leverage in the bank system, all1977of those measures combined.1978    We can see, from the data provided through the Kansas City1979Fed, that leverage was at its lowest point in the mid-2010s,1980and since then, there has been an erosion, as you say, on1981multiple fronts. Vice Chair Bowman seems to be determined,1982along with the other regulators--the FDIC and the Office of the1983Comptroller of the Currency (OCC)--to allow more leverage.1984    At the same time, the world around our financial system has1985become a lot more dangerous--financial panics repeatedly--1986including Silicon Valley Bank--the pandemic, the rise of1987China--absolutely transformative--the arrival of AI.1988    Of course, you are right to emphasize crypto. Whatever we1989think about the future of crypto, whether it is bright or not,1990it is certainly highly volatile. If the regulators are allowing1991the banks to become more intertwined, either directly with the1992cryptocurrency or with an entity as itself speculating on1993cryptocurrencies, then that is a lot more risk.1994    The only way to handle risk, from a financial system1995stability point of view, is to have more capital. The banks do1996not want to do it, Congressman, because they have these massive1997subsidies, the ``too big to fail'' subsidies.1998    They love the leverage. Bank executives for the big banks1999get paid on the basis of return on equity unadjusted for risk.2000So they want to load up on risk. They do not want to care about2001capital. They want to shove the costs onto the taxpayer. They2002get the upside. The taxpayer and regular Americans get the2003downside. So that is 2008 again.2004    Mr. Lynch. Yes. Let me ask you about, there is much faith2005being put on AI, but from this committee's perspective, we are2006seeing a small handful of AI firms that are really going to2007dominate, and so, their products will be used by hundreds,2008maybe thousands of banks. So they are all going to be operating2009off the same--the same recommendations, the same algorithms.2010    Does that not create a concentration risk if multiple2011banks, perhaps hundreds of banks, are actually making decisions2012based on the same recommendations?2013    Mr. Johnson. Yes. We will see concentration risk exactly2014there where banks make decisions, but also what Dr. Foster was2015talking about, which was agentic AI on the part of investors.2016    So investors will be coming into assets and leaving assets2017really very fast. They will be interacting with other AI. They2018will be gaming the system. This is all volatility, Congressman,2019and the only way to ensure the system against volatility is2020with more capital, not less.2021    Mr. Lynch. Right. So with all these added elements,2022especially with the crypto piece of this, and the President--2023certainly the White House--is inducing banks to get more2024involved with crypto, would not it make sense to increase the2025capital requirements for those firms that are engaging in2026crypto activities?2027    Mr. Johnson. Yes, absolutely. Crypto is dangerous and I2028would point out that the leverage is going down in community2029banks and regional banks. It is the ``too big to fail'' banks2030that are leveraging up, and they are the ones who want to pile2031into crypto. It makes no sense. It is super dangerous.2032    Mr. Lynch. Thank you, Mr. Chairman. I yield back.2033    Chairman Barr. The gentleman yields back.2034    The gentleman from Nebraska, the other Mr. Flood, is2035recognized for 5 minutes.2036    Mr. Flood of Nebraska. Thank you, Mr. Chairman, and to our2037stenographer, the record should reflect that I do represent the2038people of Nebraska. The other Mike Flood, though, is welcome to2039do all my town halls next year in Lincoln.2040    I will afford you that opportunity.2041    With that, Mrs. Eversole and Mr. Flood, as chairman of the2042Subcommittee on Housing and Insurance, I am concerned that2043over-calibrated capital requirements are limiting consumers'2044access to affordable and reliable mortgages.2045    What reforms should we consider to ensuring that consumers2046continue to access safe, reliable products and services such as2047mortgages?2048    Mrs. Eversole. Thanks very much for the question. I think2049it is important to note, as we have reflected on changes since20502008. In 2008, only 20 percent of mortgages were made outside2051of the banking system, and today, more than 60 percent are made2052outside of the banking system.2053    When we think about risk, we know that America has a highly2054regulated, safe, sound, banking system, and when we are pushing2055things outside of the banking system, we should ask the2056question: Is this because of regulatory arbitrage, or is this2057because of a good, sound, competitive marketplace? I think that2058is point one.2059    Point two is, it is time to see a Basel III Endgame2060proposal that gets this right because the cost to first-time2061home buyers, to small businesses, we should not be placing2062inappropriate risk weighting on that.2063    We look forward to the new proposal.2064    Mr. Flood of Nebraska. Mr. Flood.2065    Mr. Flood. I would just add a couple comments. I clearly2066agree with Mrs. Eversole about making sure that the risk2067matches the product.2068    One thing that I would point out as you consider2069affordability. When we look at Basel, a lot of times, it will2070treat, especially on the commercial side, a privately done,2071affordable deal with no backing, differently than one that is2072supported by the GSEs.2073    I get the concept, but if we are going--as you well know,2074if we need all hands in the boat on affordability, that is2075definitely an area that should be looked at, and clearly the2076risk weights for residential mortgages as well.2077    Mr. Flood of Nebraska. To Mrs. Eversole's point, like, we2078have this fantastic banking system. It is diverse. It is better2079than anything Europe has. We have Federal banks, State banks,2080community banks, regionals, G-SIBs but what kind of connection2081will they have to Main Street if, like you say, 60 percent of2082this is done--and we are going to be talking about GSE reform2083sometime in this Congress--is it a capital requirements issue?2084    Like, Mrs. Tahyar, like, is it a capital requirements2085issue? Can we make changes so that banks are more incentivized2086to get into the mortgage business because I think they are2087going to lose their link to Main Street if they do not have2088that relationship with the consumer?2089    Mrs. Tahyar. I strongly agree with that, and I think it is2090more than a capital requirement. I mean, what small banks have2091to do, to do a mortgage loan to somebody in their community who2092they have known for 30 years, since Dodd-Frank, has become2093enormously complex.2094    Obviously, there were problems in the financial crisis with2095the liars' loans and not checking income. What we have done2096basically is, we have made it too hard for community banks to2097do what was done for my aunt 30 years ago, which is--she was in2098the State Department. She was stationed in a foreign country.2099She needed to have a home equity loan.2100    The guy from the community bank, from the mortgage she had2101already paid off, walked down to the house, walked around the2102house, came back and told her what he could give her.2103    I do not think that would happen today.2104    Mr. Flood of Nebraska. Right.2105    Mr. Flood. Mr. Flood, if I may, I think there are three2106concrete things that should be looked at in the Basel rules:2107One, mortgage servicing rights, servicing----2108    Mrs. Tahyar. Exactly.2109    Mr. Flood [continuing]. while the chamber has absolutely no2110bias towards who wins in competition between banks and non-2111banks, a level playing field is important.2112    I think we have seen the migration of servicing out of2113banks, into non-banks, and I think the reason is entirely for2114capital reasons. So we should think about whether we are2115biasing one form toward another.2116    Another would be warehouse lines. You should look at that.2117Finally, of course, the risk weights around mortgages2118themselves.2119    Mr. Flood of Nebraska. Very good. I will finish up here2120quickly, but Mr. Olmem and Mrs. Tahyar, do you think that the2121complexity of bank capital requirements can drive further bank2122consolidation?2123    I mean, I have banks in my district, in the largest city,2124that are afraid to grow because they are bumping up against a2125new assessment that is going to be painful.2126    You do not want that. When that happens, they will be more2127likely to say, ``Oh, we will sell to a big regional.''2128    What do you think?2129    Mrs. Tahyar. It is the cliff effect of thresholds which2130have created that adverse incentive, and it is certainly2131something that the current supervisors are looking at.2132    Mr. Olmem. Yes, I fully agree. I think this is one of the2133key issues at stake with these reforms, is whether or not we2134are going to be able to have regional banks in the United2135States going forward.2136    Mr. Flood of Nebraska. We need them and want them, and with2137that, I will yield back.2138    Chairman Barr. The gentleman yields.2139    The gentleman from North Carolina, Mr. Moore, is now2140recognized.2141    Mr. Moore. Thank you, Mr. Chairman.2142    During the last administration, banking regulators drifted2143away from their core statutory mission of protecting safety and2144soundness toward subjective judgments and political priorities.2145    That shift has created uncertainty and imposed2146disproportionate burdens on the community and mid-sized2147institutions that drive credit formation.2148    Now we finally have an opportunity to restore some2149regulatory discipline and return to a framework where2150requirements are truly risk-based and proportional.2151    We are working to revive this principle of regulatory2152tailoring because the requirements should match an2153institution's actual risk profile, as several of the witnesses2154have already testified to.2155    Mrs. Tahyar, we have emphasized the need to strengthen2156tailoring, especially across categories 2, 3, and 4 banks. What2157specific changes to capital and liquidity requirements should2158be made to ensure mid-size and regional banks are not subjected2159to requirements that simply do not match their actual risk?2160    Mrs. Tahyar. So I think you have got, in the tailoring2161statute, you have got $100 billion, but there are other numbers2162that are not in the statute, and I think they should all be2163revisited.2164    There is a proposed TLAC proposal that is out there that2165would calibrate a long-term debt requirement for mid-size banks2166really as high as what the G-SIBs have, and I think there2167should be data-driven thinking to bring that calibration of2168TLAC down.2169    Then I think there should be, in the same way as the2170community bank leverage ratio a bank that hits $100 billion has2171to start its large bank program when it is at $75-, $80 billion2172and then there is this enormous kind of process, checklist kind2173of thing, and I think that more efficient supervision and more2174transition periods as thresholds are met, as well as the2175indexing of thresholds, would all be wise.2176    Mr. Moore. Thank you.2177    Charlotte that is in my district, is home to some of the2178most strategically important banks in our country. These2179institutions do not just compete domestically, but also with2180major foreign institutions subject to very different regulatory2181schemes.2182    Mrs. Eversole, how do U.S. capital proposals compare2183internationally, and what risk do you see if the United States2184ends up materially higher, with these requirements, than our2185global peers.2186    Mrs. Eversole. Thank you very much for the question,2187Congressman.2188    Just for the eight largest banks, one of which is2189headquartered in Charlotte we pay twice--we owe twice the2190capital as a consequence of the G-SIB surcharge in using method2191two, versus our international counterparts applying method one.2192    It really does not have to be that way. That does not drive2193additional safety and soundness to the system and so it is in2194all of our interests to ensure that we have the safest, most2195liquid, most vibrant capital markets and we serve our customers2196in the very best possible way, but gold-plating simply does not2197make sense, and we should revisit that.2198    Mr. Moore. Thank you. We need to get back to a capital2199framework that supports growth and competition, both at home2200and abroad. So I will go to Mr. Olmem.2201    Currently only about 40 percent of eligible community banks2202opt in to the community bank leverage ratio. How should the2203CBLR be reformed so that it truly reduces burden, and can be2204used by qualifying banks?2205    Mr. Olmem. Thank you for that question. The current2206proposal that has been out to revise the community bank2207leverage ratio, I think is a good step in the right direction.2208    It will lower the overall leverage ratio to 8 percent, but2209also it will allow--it will exempt institutions from having to2210still calculate the risk-based as well, which is pretty2211expensive. Oftentimes institutions, if they have to calculate2212it, they will just go ahead and comply because a lot of the2213compliance costs are there. Removing that requirement also2214should help take-up. So I am hopeful that the existing proposal2215should approve the take-up rate.2216    Mr. Moore. When the Biden Administration released the2217original Basel III Endgame proposal, they received an2218overwhelming number of critical comments.2219    One analysis found that 97 percent of commenters opposed2220the proposal, and more than 85 percent came from outside the2221banking industry, including farmers, small businesses, housing2222advocates, and manufacturers, all citing concerns about higher2223costs for goods, services, and lending, that, of course, we2224have seen impact on the economy.2225    So, Mrs. Eversole, what are the impacts of increased bank2226capital requirements beyond just the balance sheets?2227    Mrs. Eversole. Right. At the end of the day, there are2228consequences to more capital. It does not come--it does not2229come for free.2230    The consequences, as you articulate them from the prior2231proposal on the Basel III Endgame, would have had a2232disproportionate impact on privately held companies, like small2233businesses across America, America's farmers, America's savers,2234America's retirees.2235    We need to get the proposal right, and we look forward to2236the proposal that is coming out.2237    Mr. Moore. So regulators had determined that capital levels2238were about right in 2020. What changed?2239    Chairman Barr. I am going to have to ask you to respond for2240the record because----2241    Mr. Moore. I believe we are out of time. Thank you, Mr.2242Chairman. Appreciate it and appreciate the witnesses.2243    Chairman Barr. Thank you, Mr. Chairman, and I want to thank2244all of our witnesses for their testimony today, and I request2245unanimous consent to enter into the record an op-ed that I2246authored in support of H.R. 1761, legislation noticed for this2247hearing, that I am leading with Representative Wilson of South2248Carolina, celebrating the 250th anniversary of our Republic,2249cited as the Donald J. Trump $250 Bill Act that directs the2250Secretary of Treasury to print Federal Reserve notes in the2251denomination of $250, featuring a portrait of Donald J. Trump.22522253    [The information referred to was not submitted prior to2254printing.]22552256    Without objection, all members will have 5 legislative days2257to submit additional written questions for the witnesses to the2258chair. The questions will be forwarded to the witnesses for2259their response.2260    Witnesses, please respond no later than January 15, 2026.22612262    [The information referred to can be found in the appendix.]22632264    This hearing is adjourned.22652266    [Whereupon, at 11:58 a.m., the subcommittee was adjourned.]22672268                                 APPENDIX22692270                              ----------22712272                   MATERIALS SUBMITTED FOR THE RECORD2273[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]22742275                          [all]