Brown, Colleagues Urge Federal Reserve to Strengthen Guardrails for the Biggest Banks
WASHINGTON, D.C. – Today, U.S. Senators Sherrod Brown (D-OH), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, Jack Reed (D-RI), a senior member of the Banking and Housing Committee, Elizabeth Warren (D-MA), and John Fetterman (D-PA) expressed strong support for the Federal Reserve’s efforts to strengthen the safety and soundness of the global systemically important banking organizations (GSIBs). In a letter to Federal Reserve Vice Chair of Supervision Michael Barr, the Senators urged the Federal Reserve to finalize a proposal that would better reflect a GSIB’s risk and improve the resiliency of the largest and most complex global banks.
“These banks should be using more shareholders’ equity to fund their risky activities, so that they – not U.S. taxpayers – are on the hook if those bets do not pay off. We urge the Federal Reserve to finalize a strong GSIB surcharge rule that improves the resiliency of the largest, global systemically important banks and the broader financial system. Imposing stronger capital rules on the biggest Wall Street banks will help protect Main Street workers, small businesses, and the economy,” the Senators wrote.
You can read the full letter here and below:
Dear Vice Chair Barr:
We strongly support the Board of Governors of the Federal Reserve System’s effort to make the U.S. banking system more resilient by strengthening the guardrails at global systemically important banking organizations (GSIBs).
As we saw in the 2008 financial crisis, global megabanks took on layers of risky financial bets with too little capital to withstand the losses, crashing our financial system and forcing taxpayer bailouts, while millions of workers and their families lost their homes, jobs, and savings. The GSIB surcharge is an additional capital buffer designed to improve the safety and soundness of global systemically important institutions, strengthen their resiliency against stress events, and mitigate the risks to the financial stability of the United States and global economies resulting from a big bank failure. The biggest, most complex, and most interconnected global banks which have exposures to riskier, nontraditional banking activities, like trading, derivatives, and private equity, pose unique threats to the financial system. It is imperative that our regulatory capital framework adequately accounts for those risks.
The Federal Reserve’s proposal would fine-tune the calculation of the GSIB surcharge to better reflect a firm’s systemic risk. The proposal would enhance the sensitivity and responsiveness of the surcharge to changes in an institution's risk profile and deter firms from gaming the system to lower their capital buffers. These banks should be using more shareholders’ equity to fund their risky activities, so that they – not U.S. taxpayers – are on the hook if those bets do not pay off.
We urge the Federal Reserve to finalize a strong GSIB surcharge rule that improves the resiliency of the largest, global systemically important banks and the broader financial system. Imposing stronger capital rules on the biggest Wall Street banks will help protect Main Street workers, small businesses, and the economy.
Sincerely,
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