U.S. Financial Services Committee reviews U.S. bank capital framework with focus on risk alignment and tailoring

The U.S. Financial Services Committee’s Subcommittee on Financial Institutions held a hearing on the U.S. bank capital framework, focusing on how capital requirements affect institutions of different sizes and the availability and cost of credit for households and businesses. The discussion centred on creating a more transparent, risk-aligned regime while addressing concerns about disproportionate burdens on community and midsize banks. Committee members highlighted tailoring as a way to reduce compliance and capital burdens on smaller institutions and raised concerns that higher or “over calibrated” requirements could constrain small business lending and mortgage affordability. Points raised included that prudential regulators estimate around 85% of community banks qualify for the Community Bank Leverage Ratio (CBLR), while only 45% reportedly use it, alongside a call to modernize CBLR through the proposed Community Bank Lift Act. Witnesses urged reforms spanning Basel III endgame implementation, stress test transparency, leverage requirements including the Tier 1 leverage ratio, and the Global Systemically Important Bank (G-SIB) capital surcharge, with several arguing that calibration choices affect competitiveness and the real economy as well as prudential outcomes.