'Flawed Both In Process And In Substance': Tim Scott Rails Against Basel III Banking Regulations
During a Senate Banking Committee hearing prior to the Congressional recess, Sen. Tim Scott (R-SC) spoke about the Basel III banking framework.
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Transcript
00:00Senator Scott from South Carolina is recognized. Thank you, Mr. Chairman. Chair Powell, we've heard a steady stream of
00:06commentary that there will be changes to Basel III endgame proposal that can be
00:10seen certainly as good news. Some reports say it could be finalized as soon as
00:14August. Others say you're circulating a term sheet for a revised proposal. Through
00:22it all, this proposal will have outsized impacts on our banking system from big
00:27to regional to our U.S.-based foreign institutions as well as impeding access
00:33to credit for consumers. So even though you yourself have said there will be
00:38broad and material changes, I believe this proposal is flawed both in process
00:43and in substance and should be withdrawn. Do you agree and will you commit to
00:47withdrawing the existing proposal and issuing a new proposal with a robust
00:51notice and comment process? Let me update everyone on the status of all
00:58that. So over the past several months, we've had, in fact, Vice Chair for
01:05Supervision Barr has held a series of discussions with the other bank
01:09regulatory agencies around potential changes to the original proposal. I'm
01:14pleased to say that we've made quite a bit of progress on those and are
01:18very close to agreeing on the substance of those changes. And I can't really be
01:23specific because nothing is agreed until everything's agreed, so I won't have a
01:26lot of specifics for you today. The question where we're continuing to try
01:31to make progress is that of process. So it is my view, is the strongly held
01:36view of members of the board, that we do need to put a revised proposal out
01:44for comment for some period. And the reason is, you know, when there are broad
01:48and material changes, that has been our practice. We don't see a reason to deviate
01:52from that practice. It seems to be consistent with past practice and with
01:56with the Administrative Procedure Act, so that's very much what we think. And we're
02:00working through that question with the FDIC and the OCC. We
02:07haven't reached agreement on that, but I'm very hopeful that we will. You know,
02:10we're prepared to move forward when we do reach agreement on that.
02:15I appreciate most of your response there. I do want to discuss one aspect
02:20more of Basel before we move on to another topic. I find it very concerning
02:24with how much of this proposal, this process, appears to have been done behind
02:29closed doors. The Fed, the FDIC, OCC proposed Basel III endgame last July.
02:36Then in October, the Fed began the collection of data to conduct a
02:41quantitative impact study on the cost of Basel III proposal, a study which I will
02:46note should have been conducted before any proposal was ever issued. Move
02:52forward to January of this year, Vice Chair Barr committed to a public comment
02:56period once results of the study were published. We are still waiting to view
03:00the results. Keep in mind, all the while, we're hearing rumors that the Fed is
03:05working on revising its proposal and moving towards an updated version. Please
03:10help me understand, how will the Fed revise or reissue a capital proposal
03:14before receiving public comments? Basically, my question. As you know, we
03:18have received extensive public comments, and we've also evaluated the
03:23quantitative impact survey that you mentioned. Yes. So the idea would be, when
03:27we do reach agreement with the other agencies fully, that we would
03:31publish the proposed changes and also the quantitative impact survey,
03:38and also the effects that the QIS suggests that the changes would have.
03:43So we'll put all that out for comment again for a period of time, and then,
03:48having had yet another round of comment, we can then move toward
03:53finalizing. That's basically the broad strokes of how I would see
03:58this moving forward. How long do you see that opportunity for public comments?
04:06It would be meaningful. I mean, it might be 60 days. It doesn't
04:10need to be a long one, but before we do that, there's a lot of
04:14work that needs to take place before you actually put out the revised
04:20proposal. Quite a bit of work. So it will take some time, and then we would
04:24put it out, and then there would be, I mean, I'm just taking that number, 60
04:29days of comment, and then we would get the comments back, and it would be
04:33another period of evaluating the comments, and only then would you go
04:38final. So there are a number of steps here. Thank you. Well, just a final point,
04:43as I'm running out of time here, Senator Reid made the comment about the
04:47Chevron case and the impact that it could have, certainly curtailing, from my
04:51perspective, the regulatory state. The necessity of a cost-benefit analysis on
04:56new regulations that will impact the economy, I think, is quite helpful. In the
05:00thousands, thousand-plus pages of Basel III, I think there were about 20 pages
05:04that reflected some kind of cost-benefit analysis approach. I really hope that we
05:09see more of that going forward. Thank you.