On Tuesday, November 7, 2024, the Wharton Initiative on Financial Policy and Regulation (WIFPR) hosted a roundtable on Basel III Endgame. The roundtable convened two dozen academic, industry, and policy experts to discuss the proposed rule by the federal banking agencies (Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency) to revise capital requirements on large banks and implement international capital standards as set forth in Basel III. The conversation took place under the Chatham House rule. A full list of participants is available here.
The discussion was divided into two parts: “Economic effects” and “Legal and policy issues.” The section on economic effects focused on the impact on credit, the effects on medium and large banks, and more broadly the tradeoffs involved in these regulations. Participants had a range of views on the need for increasing capital, with some arguing that the proposals will make the system safer with little adverse impact on lending and others arguing that the proposals will adversely affect lending. There was general agreement on the need to consider how the proposal could incentivize movement into non-bank financial intermediation.
The section on legal and policy issues focused on implementation, potential legal challenges, international comparisons, and the broader policy landscape. Some participants found the process for drafting the proposals problematic, arguing that regulators did not engage sufficiently with industry. In addition, they questioned whether the regulations followed the Administrative Procedure Act in its use of data. Others wondered about the implications of the gap in implementation between the United States and the European Union. There was general agreement that the process is likely far from over; indeed, regulators have already extended the deadline for comments from November 30, 2023, to January 16, 2024.
Given the importance of the proposed rule and the wide range of opinion, WIFPR invited several attendees to write blog posts expressing their views. We will publish this series on our blog over the coming weeks. You can find links to the posts below as they are published.
Tomasz Piskorski (Columbia Business School): Rethinking Banking Regulation and the Basel III Endgame
Sarah Hammer (Wharton): The Real Endgame: Addressing the Challenges of Modern-Day Bank Runs
David Zaring (Wharton): A Few Thoughts on Basel III Endgame
Viral V Acharya (NYU Stern): Basel III Endgame was inevitable for large banks, but what about non-banks and smaller banks?