Fed Plans To Release Sweeping Bank‑Capital Rule By Late March: Top Regulator

Authored by Andrew Moran via The Epoch Times (emphasis ours),

Long-awaited banking regulation—also known as the Basel III Endgame framework—will be released next month, said the Federal Reserve’s top banking regulator.

Fed Vice Chair for Supervision Michelle Bowman, appearing at a Senate Banking Committee hearing on Feb. 26, confirmed that regulators are expected to release an updated Basel III proposal at the end of March.

But while this is the chief goal, Bowman hinted that the deadline might need to be extended.

She told lawmakers that officials at the Fed, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation have reached a consensus on the reproposal.

Basel III is a regulatory blueprint crafted in the fallout of the global financial crisis of 2008. It features a number of capital reforms and tighter requirements for how large U.S. banks measure credit, market, and operational risk.

In recent months, Bowman has teased that Basel III has retooled capital requirements, a move that could bolster lending by traditional lenders, particularly in the mortgage market.

“We’re very focused, as we were thinking about the Basel approach, in ways that we could right-size and recalibrate the approach for residential mortgage lending so that we could encourage the banks to get back into the mortgage business,” Bowman told senators.

“We’re refocusing our supervision in a laser focus on material financial risks.”

This comes shortly after Bowman suggested new mortgage capital rules for U.S. banks would be integral to the Basel III proposal.

Appearing at an American Bankers Association event on Feb. 16, Bowman stated that one change could tie a mortgage’s risk weight to its loan-to-value-ratio, effectively removing the one-size-fits-all approach. Another update could remove a provision requiring that banks deduct mortgage‑servicing assets from regulatory capital.

For years, critics have argued that the original Basel III proposal would have reduced lending due to higher capital mandates and would have led to higher funding costs for borrowers.

Proponents say higher capital requirements are necessary to prevent a similar financial crisis in the future.

But while the focus has been on Basel, Bowman argued that other issues also need to be addressed, including the Consumer Financial Protection Bureau’s stringent requirements and the sizable penalties banks face if they make mistakes on mortgage applications.

“I think it’s important that we think about this in a broader manner and holistically as we approach thinking about banks getting back into the mortgage space,” Bowman said.

Support for Homeownership

Overall, Bowman noted, the upcoming reproposal could spark affordable homeownership, ensure banks of all sizes come off the sidelines, and support market liquidity.

“My approach is to calibrate the new framework from the bottom up, rather than reverse engineer changes to achieve predetermined or preconceived outcomes to capital requirements,” she stated.

This comes as a group of eight major banking and housing associations urged regulators to ease mortgage capital requirements.

In a letter to the Fed, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp., the organizations stated that today’s regulatory environment discourages bank participation in mortgage markets, exacerbating housing affordability challenges.

The groups said they support current efforts to alter the Basel III Endgame rule, casting the process as an opportunity to strengthen mortgage‑market stability and create space for banks to play a larger role in home lending.

“Adequate capital reduces the likelihood of bank failures that threaten broader financial stability, which can prove costly for households, financial institutions, and taxpayers,” the letter stated. “However, excessive capital requirements that are misaligned with empirically derived risk assessments can negatively affect the cost of and access to credit.”

Revitalizing the mortgage market has been one of the current administration’s objectives to ensure more households have an opportunity to become homeowners.

In his record-length State of the Union address, President Donald Trump noted that his economic agenda balances the needs of current homeowners and homebuyers.

“Low interest rates will help reduce the Biden‑created housing affordability crunch,” Trump said. “We want to protect those values. We want to keep those values up. We’re going to do both.”

As of Feb. 26, the average 30-year fixed-rate mortgage is 5.98 percent, according to Freddie Mac’s Primary Mortgage Market Survey.

A recent National Association of Realtors poll found that 85 percent of U.S. voters believe homeownership is central to the American dream.