Washington, D.C., July 27, 2023 – SIFMA issued the following statement from president and CEO Kenneth E. Bentsen, Jr. today regarding a notice of proposed rulemaking (NPR) from the Federal Reserve, Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) on U.S. implementation of regulatory changes related to the Basel III ‘Endgame:’

“As currently considered, the U.S. Basel III ‘Endgame’ will overhaul the current risk-based capital framework and dramatically increase capital for the largest U.S. and internationally headquartered banks’ trading activities. Additionally, the proposed operational risk capital charge will penalize firms’ fee-based wealth management and investment banking activities. Regulators have failed to provide justification for such an increase in capital requirements for the trading book, particularly given how resilient U.S. markets have been since the Global Financial Crisis.  Imposing a punitive capital charge on businesses that provide steady fee income is misguided.

“The proposal does not adequately consider how the risk-based capital framework will interact with other elements of the U.S. prudential framework, in particular the overlap between the Global Market Shock (GMS) under the Stress Capital Buffer (SCB) and the revised market risk capital requirements.  We have long believed the Federal Reserve should publish the methodologies for the GMS scenarios design and losses estimate for public notice and comment in the context of how they will interact with the Fundamental Review of the Trading Book’s parallel treatment of the same risks.

“Importantly, the U.S. funds 75% of commercial activity through our capital markets, a structure every other jurisdiction is seeking to emulate.  Imposing dramatic increases in capital on the trading book will likely result in increased costs and/or reduced capital and credit to end users of our markets.  The regulators have failed to provide justification for such action.

“Further, we fail to see the justification for imposing a capital tax on firms’ fee income businesses.  Many firms have grown their wealth management businesses to meet strong customer demand.  The businesses provide steady income that offsets the more cyclical nature of other businesses. Like our capital markets, the U.S. also enjoys the most democratic retail investor market in the world.  Regulators have provided no justification for such a capital tax.

“We look forward to engaging with the Agencies on these important issues in the weeks and months to come.”

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SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s one million employees, we advocate on legislation, regulation and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development.  SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA).