    [House Hearing, 119 Congress]
    [From the U.S. Government Publishing Office]

                       RIGHT-SIZING THE U.S. BANK CAPITAL
                        FRAMEWORK: A RETURN TO TAILORING,
                       ECONOMIC GROWTH, AND COMPETITIVENESS
    =======================================================================

                                    HEARING

                                   BEFORE THE

                     SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES
                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED NINETEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               DECEMBER 11, 2025

                                   __________

                               Serial No. 119-49

           Printed for the use of the Committee on Financial Services

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                www.govinfo.gov

                                  __________

                         U.S. GOVERNMENT PUBLISHING OFFICE
    63-577 PDF                  WASHINGTON : 2026
    =======================================================================

                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                        FRENCH HILL, Arkansas, Chairman

    BILL HUIZENGA, Michigan, Vice        MAXINE WATERS, California, Ranking
        Chairman                             Member
    FRANK D. LUCAS, Oklahoma             SYLVIA R. GARCIA, Texas, Vice
    PETE SESSIONS, Texas                     Ranking Member
    ANN WAGNER, Missouri                 NYDIA M. VELAZQUEZ, New York
    ANDY BARR, Kentucky                  BRAD SHERMAN, California
    ROGER WILLIAMS, Texas                GREGORY W. MEEKS, New York
    TOM EMMER, Minnesota                 DAVID SCOTT, Georgia
    BARRY LOUDERMILK, Georgia            STEPHEN F. LYNCH, Massachusetts
    WARREN DAVIDSON, Ohio                AL GREEN, Texas
    JOHN W. ROSE, Tennessee              EMANUEL CLEAVER, Missouri
    BRYAN STEIL, Wisconsin               JAMES A. HIMES, Connecticut
    WILLIAM R. TIMMONS, IV, South        BILL FOSTER, Illinois
        Carolina                         JOYCE BEATTY, Ohio
    MARLIN STUTZMAN, Indiana             JUAN VARGAS, California
    RALPH NORMAN, South Carolina         JOSH GOTTHEIMER, New Jersey
    DANIEL MEUSER, Pennsylvania          VICENTE GONZALEZ, Texas
    YOUNG KIM, California                SEAN CASTEN, Illinois
    BYRON DONALDS, Florida               AYANNA PRESSLEY, Massachusetts
    ANDREW R. GARBARINO, New York        RASHIDA TLAIB, Michigan
    SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York
    MIKE FLOOD, Nebraska                 NIKEMA WILLIAMS, Georgia
    MICHAEL LAWLER, New York             BRITTANY PETTERSEN, Colorado
    MONICA DE LA CRUZ, Texas             CLEO FIELDS, Louisiana
    ANDREW OGLES, Tennessee              JANELLE BYNUM, Oregon
    ZACHARY NUNN, Iowa                   SAM LICCARDO, California
    LISA McCLAIN, Michigan
    MARIA SALAZAR, Florida
    TROY DOWNING, Montana
    MIKE HARIDOPOLOS, Florida
    TIM MOORE, North Carolina

                          Ben Johnson, Staff Director

                                     ------

                     SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                         ANDY BARR, Kentucky, Chairman

    BARRY LOUDERMILK, Georgia,           BILL FOSTER, Illinois, Ranking
        Vice Chairman                        Member
    BILL HUIZENGA, Michigan              NYDIA M. VELAZQUEZ, New York
    ROGER WILLIAMS, Texas                GREGORY W. MEEKS, New York
    JOHN W. ROSE, Tennessee              DAVID SCOTT, Georgia
    WILLIAM R. TIMMONS IV, South         BRAD SHERMAN, California
        Carolina                         AL GREEN, Texas
    RALPH NORMAN, South Carolina         JUAN VARGAS, California
    DANIEL MEUSER, Pennsylvania          SEAN CASTEN, Illinois
    YOUNG KIM, California                STEPHEN F. LYNCH, Massachusetts
    BYRON DONALDS, Florida               JOYCE BEATTY, Ohio
    SCOTT FITZGERALD, Wisconsin          CLEO FIELDS, Louisiana
    MIKE FLOOD, Nebraska
    MONICA DE LA CRUZ, Texas
    TIM MOORE, North Carolina

                            C  O  N  T  E  N  T  S

                                  ----------

                          Thursday, December 11, 2025
                               OPENING STATEMENTS

                                                                       Page
    Hon. Andy Barr, Chairman of the Subcommittee on Financial
      Institutions, a U.S. Representative from Kentucky..............     1
    Hon. Bill Foster, Ranking Member of the Subcommittee on Financial
      Institutions, a U.S. Representative from Illinois..............     3

                                   STATEMENTS

    Hon. French Hill, Chairman of the Committee on Financial
      Services, a U.S. Representative from Arkansas..................     4
    Hon. Maxine Waters, Ranking Member of the Committee on Financial
      Services, a U.S. Representative from California................     5

                                   WITNESSES

    Mrs. Margaret Tahyar, Head of Financial Institutions, Davis Polk
      & Wardwell LLP.................................................     5
        Prepared Statement...........................................     8
    Mrs. Amanda Eversole, President and Chief Executive Officer,
      Financial Services Forum.......................................    18
        Prepared Statement...........................................    20
    Mr. Andrew Olmem, Managing Partner and Co-Leader of the Financial
      Services Group, Mayer Brown....................................    36
        Prepared Statement...........................................    38
    Mr. Mike Flood, Head of Center for Capital Markets
      Competitiveness, U.S. Chamber of Commerce......................    44
        Prepared Statement...........................................    46
    Mr. Simon Johnson, Professor of Entrepreneurship at the MIT Sloan
      School of Management...........................................    54
        Prepared Statement...........................................    56

                                    APPENDIX

                       MATERIALS SUBMITTED FOR THE RECORD

    Hon. Andy Barr:
        The Mortgage Bankers Association (MBA).......................   102

                     RESPONSES TO QUESTIONS FOR THE RECORD

    Written responses to questions for the record from Mr. Simon
      Johnson
        Representative Al Green......................................   108

                                  LEGISLATION

    H.R. 5616, the $2.50 for America's 250th Act.....................   111
    H.R. 1761, the Donald J. Trump $250 Bill Act.....................   118

                       RIGHT-SIZING THE U.S. BANK CAPITAL
                       FRAMEWORK: A RETURN TO TAILORING,
                      ECONOMIC GROWTH, AND COMPETITIVENESS

                                  ----------

                          Thursday, December 11, 2025

                 U.S. House of Representatives,
                Subcommittee on Financial Institutions,
                               Committee on Financial Services,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 10:09 a.m., in
    room 2128, Rayburn House Office Building, Hon. Andy Barr
    [chairman of the subcommittee] presiding.
        Present: Representatives Barr, Hill, Huizenga, Williams of
    Texas, Loudermilk, Rose, Timmons, Kim, Flood, Moore, Foster,
    Waters, Velazquez, Scott, Sherman, Green, Vargas, Casten,
    Lynch, Beatty, and Fields.
        Chairman Barr. The Subcommittee on Financial Institutions
    will come to order.
        Without objection, the chair is authorized to declare a
    recess of the committee at any time.
        Today's hearing is titled ``Right-Sizing the U.S. Bank
    Capital Framework: A Return to Tailoring, Economic Growth, and
    Competitiveness.''
        Without objection, all members will have 5 legislative days
    within which to submit extraneous materials to the chair for
    inclusion in the record.
        I now recognize myself for 4 minutes for an opening
    statement.

         OPENING STATEMENT OF HON. ANDY BARR, CHAIRMAN OF THE
     SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE
                             FROM KENTUCKY

        Today, the subcommittee turns its attention to an issue
    that sits at the heart of American economic strength: our bank
    capital framework. For years, Washington has layered rule upon
    rule on American banks, forcing them to retain capital at
    levels that far exceed standards applicable to our global
    competitors, and the results have been detrimental to U.S.
    firms.
        We have a capital system that increasingly gold-plates
    international requirements, imposes one-size-fits-all mandates
    on institutions with different risk and business profiles, and
    undermines the competitiveness of American institutions.
        Let me be clear. Republicans on this committee support a
    tailored, commonsense capital framework that protects the
    safety and soundness of the American financial system, but what
    we do not support is a regulatory framework that needlessly
    restricts credit, penalizes growth, and places American banks
    at a disadvantage against foreign competitors who are held to
    lesser standards.
        The Basel III Endgame framework should not be solely
    focused on international harmonization. It should be focused on
    economic growth as well. Capital should be right-sized to
    protect the economy, not inflated for ideological reasons, not
    used as a tool to achieve political objectives, and not
    calibrated without regard to the real-world impacts on lending
    liquidity and the economic vitality of local community
    institutions.
        This is why the Biden Administration's initial Basel III
    Endgame proposal was deeply flawed and received bipartisan
    criticism. It threatened to elevate capital burdens so far
    above international norms that entire categories of banking
    business lines, from residential mortgages to market-making,
    could have migrated to offshore institutions.
        Fortunately, the bipartisan message was clear: The Basel
    III Endgame must be reproposed, and that reproposal is not just
    an opportunity but a responsibility to get this right.
        We need a framework that is proportional, tailored, and
    grounded in empirical analysis. We need a framework that
    recognizes the diversity of the American banking system. We
    must build upon the bipartisan S.2155 to ensure capital
    requirements are tailored based on a bank's size, complexity,
    and risk profile.
        Indeed, a regional bank focused on traditional lending
    should not be subject to the same standards intended for
    institutions engaged in significant trading, cross-border
    activities, or complex market operations.
        We must account for growth in the economy by indexing
    regulatory and category thresholds. This way banks do not
    stifle their growth when it is needed most.
        If we get this right, if we right-size capital, eliminate
    unnecessary gold-plating, and build a framework that tailors
    requirements to actual risk, we can preserve what makes
    American banking exceptional.
        We do not want a barbell banking system in this country
    with a number of small banks and global systemically important
    banks (G-SIBs) and nothing in between. Achieving this stems
    from a well-calibrated capital framework that incentivizes
    growth and competition while maintaining safety and soundness.
        We must ensure that community banks continue to serve as
    economic anchors in small towns and rural communities. We must
    keep U.S. institutions competitive on the global stage, and we
    must create a regulatory environment that supports--not
    strangles--growth, innovation, and opportunity.
        So today I look forward to hearing from our witnesses about
    how we can design a capital framework that strengthens
    stability without sacrificing competitiveness, that respects
    the structure of the American banking system, that promotes the
    heterogeneity and diversity of that system, and reins in the
    excesses of prior regulatory overreach.
        I thank our witnesses for being here today to provide their
    valuable insights and perspectives, and I yield back.
        Chairman Barr. I now recognize the ranking member of the
    subcommittee, Dr. Foster, for 4 minutes for his opening
    statement.

     OPENING STATEMENT OF HON. BILL FOSTER, RANKING MEMBER OF THE
     SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE
                             FROM ILLINOIS

        Mr. Foster. Thank you, Chairman Barr, and to our witnesses.
        I represent Woodstock, Illinois, where the film Groundhog
    Day was filmed, and so here we go; going to once again examine
    the regulatory capital framework for U.S. banks.
        Part of the prudential regulatory umbrella, capital
    standards provide a buffer against insolvency when financial
    institutions take losses, helping them weather economic
    downturns, failed investments, or the missteps of management.
        The 2008 financial crisis highlighted flaws in the
    regulatory framework for U.S. banks when the true risk of
    assets did not match the corresponding capital charge assigned
    to them. Supposedly, well-regulated--well-rated, mortgage-
    backed securities and off-balance sheet exposures received
    little supervisory attention, leading to massive losses and a
    crisis of confidence in the banking system when those same
    assets dropped by enormous amounts.
        In response to this crisis and the taxpayer-funded bailout
    of the U.S. financial system, Congress passed the Wall Street--
    Dodd-Frank Wall Street Reform and Consumer Protection Act to
    enhance the supervision and regulation of the financial system.
    Dodd-Frank took a tiered approach applying the most stringent
    capital to the largest and most complex banks that posed the
    greatest risk to financial stability. The largest banks became
    subject to safeguards meant to prevent a similar crisis,
    including higher capital ratios, stress testing, resolution
    planning, and other prudential requirements.
        Following the financial crisis, financial regulators around
    the world, including the United States, convened in forums like
    the Basel Committee on Banking Supervision to facilitate
    cooperation between member countries and enhance financial
    stability. These forums are important, as this cooperation
    prevents a race to the bottom that would ultimately make the
    global financial system much less safe.
        Since the enactment of Dodd-Frank, Congress has revisited
    several prudential standards to respond to changes in the
    banking economy, risks to financial stability, change over
    time, and new risks to merge which, for example, everything
    having to do with technology that should be our focus today and
    unfortunately, instead of repeating the same debate that has
    crystallized around 2009 has not changed in almost 15 years.
        The regional banking crisis, for example, in 2023
    demonstrated that bank runs following steep losses can occur
    much faster than previously thought, and they are going to
    become faster when agentic AI makes bank runs possible at the
    speed of AI rather than the speed of internet gossip.
        I worry that these type of events will be much more common
    with a commoditization of AI, the introduction of emerging
    volatile assets into the banking system. Banking regulators
    have a duty to ensure that the banks and their agencies are
    ready to deal with these types of runs and to strengthen
    safeguards against rapid withdrawals and dramatic price swings
    in various asset classes.
        Under President Trump, the banking regulators have taken
    steps that undermine this financial stability, namely, by
    dismantling the Consumer Financial Protection Bureau, which was
    created by Dodd-Frank to stop the very same predatory lending
    practices that contributed to the global financial crisis.
        They have also moved to weaken stress testing for the
    largest banks, cut staffing at the Financial Stability
    Oversight Council (FSOC) and its member agencies, and are
    pushing firms to engage with digital assets that can experience
    extremely high price volatility.
        We expect banking regulators will soon propose a revised
    rule to implement the principles of the Basel III Endgame.
    Under the last iteration of the proposal, members of this
    committee raised certain concerns about the proposal related to
    the capital treatment of mortgages, small business loans, tax
    equity, and derivatives used for risk management.
        So I encourage regulators to consider these concerns as
    they develop the new proposal and the combined impact of
    financial stability with the other changes being advanced on
    leverage, stress testing, and other areas.
        My colleagues on this committee should call for a robust
    cost-benefit analysis for the coming proposal, as they did with
    the last proposal, and push regulators to back up their
    proposals with data.
        Thank you again, Chair Barr, and I yield back.
        Chairman Barr. The gentleman yields back.
        I now recognize the chairman of the full committee, Mr.
    Hill, for 1 minute for an opening statement.

      STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE COMMITTEE ON
        FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM ARKANSAS

        Chairman Hill. Thank you, Chairman Barr.
        The U.S. banking system is at a pivotal juncture right now.
    Regulators have the opportunity to establish credit and capital
    standards that strengthen financial security without unduly
    limiting economic growth or a bank's ability to compete on an
    international scale.
        Even so, small and community banks continue to face
    disproportionate compliance and capital burden that were never
    intended for institutions of their size. Despite these
    challenges, U.S. banks remain, as Chairman Powell has mentioned
    many times, well-capitalized, resilient, and able to support
    lending, investment, and economic growth.
        This does not mean we should ignore the inefficiencies in
    the current framework, and particularly under Chairman Barr's
    leadership, the Congress must encourage regulators to tailor
    capital requirements based on bank size, complexity, and risk
    profile, rather than apply a one-size-fits-all approach.
        Thoughtful tailoring can free up capital for productive
    uses, helping banks support small businesses, home buyers, and
    economic expansion across all of our districts.
        Thank you, and I yield back.
        Chairman Barr. I now recognize the ranking member of the
    full committee, Mrs. Waters, for a 1-minute opening statement.

        STATEMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE
      COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
                               CALIFORNIA

        Ms. Waters. Thank you very much.
        I look forward to the testimony as we discuss bank capital.
        Trump's regulators and Republicans are tearing down the
    safeguards that keep our banks safe to ensure stable economic
    growth. Reducing capital for our largest banks will make them
    less resilient, less likely to lend during periods of stress,
    and more likely to fail.
        Weakening these safeguards, these guardrails, leaves
    hardworking Americans to bear the consequences. We saw this in
    2008 when banks gambled with borrowed money and families,
    workers, and small businesses, and whole communities paid the
    price.
        If we want to strengthen our financial system for the
    benefit of small businesses and their workers, as well as
    community banks and credit unions, then I hope Chairman Hill
    will work with me to advance overdue deposit insurance reforms
    and on this issue of capital and the continued efforts by the
    Republicans to reduce the capital that the banks should hold,
    we are going to have a fight.
        Chairman Barr. The gentlelady's time has expired.
        Today we welcome the testimony of some outstanding
    witnesses. First, Mrs. Margaret Tahyar, head of financial
    institutions at Davis Polk; Mrs. Amanda Eversole, president and
    chief executive officer of Financial Services Forum; Mr. Andrew
    Olmem, managing partner and co-leader of the Financial Services
    group at Mayer Brown; Mr. Mike Flood--the other Mike Flood--
    head of the Center for Capital Markets Competitiveness at the
    U.S. Chamber of Commerce; and Mr. Simon Johnson, professor of
    entrepreneurship at the MIT Sloan School of Management.
        We thank each of you for taking the time to be here. Each
    of you will be recognized for 5 minutes to give an oral
    presentation of your testimony. Without objection, your written
    statements will be made part of the record.
        Mrs. Tahyar, you are now recognized for 5 minutes for your
    oral remarks.

     STATEMENT OF MARGARET TAHYAR, HEAD OF FINANCIAL INSTITUTIONS,
                       DAVIS POLK & WARDWELL LLP

        Mrs. Tahyar. Chairman Barr, Ranking Member Foster, and
    members of the subcommittee, thank you for asking me to
    testify.
        Capital regulation is long overdue for a rethink, and this
    subcommittee should encourage the banking regulators to move
    quickly to appropriately implement the Basel III Endgame with
    appropriate data, appropriate cost-benefit analysis.
        I would like to leave you with three thoughts this morning.
        First, capital is very important, but it is not the only
    tool in the financial stability kit.
        Second, choices about the calibration of capital are
    political economy choices that involve credit engineering. They
    can also change the regulatory perimeter.
        Third, our economy and our banking sector are complex.
    Tailoring, as the chairman has noted, is the solution so that
    we do not treat large banks the same as community banks.
        Capital is an important thing, but it is not everything. We
    cannot expect it to be the sole insurance against financial
    stability. We should see it as part of an integrated system
    that also includes early intervention, resolution planning,
    credit concentration, contingency planning, risk management,
    total loss-absorbing capacity (TLAC), deposit insurance, and
    hands-on supervision and we should understand that capital
    absorbs losses, but it is not liquidity regulation, so it does
    not help against quick deposit runs.
        Capital regulation involves political economy choices. How
    much financial stability insurance should a banking
    organization be required to purchase? Any increase in bank
    capital requirements increases the cost of funding. I think we
    can all agree that capital levels going into the great
    financial crisis were too low, but today I think we have to ask
    whether current capital levels also come at a cost to the real
    economy.
        Risk weighting for purposes of risk-based capital
    requirements is a form of credit engineering. The zero percent
    risk weighting for Treasurys, the 50 percent risk weighting for
    mortgages, and the international Basel Committee's 1,250
    percent risk weighting for crypto assets reflect political
    economy choices that are appropriate for this committee to
    oversee. For example, if implemented, the crypto assets risk
    weighting would seem to be contrary to the Guiding and
    Establishing National Innovation for U.S. Stablecoins (GENIUS)
    Act.
        Another point is that any capital framework will need
    updating and renewal from time to time even though the debates
    share patterns. That update should be data-driven,
    understanding it will never be perfect.
        Markets of technology and geopolitics are not waiting
    around for the Basel III Endgame. In fact, calling this last--
    latest round of rulemaking Basel III Endgame is kind of a
    misnomer, implying that, once the next round of rules takes
    effect, we are done.
        I think we should not think of capital as a Marvel movie
    with a tidy ending. The economy, the financial system will
    remain in constant flux, and banking regulators should
    periodically review capital regulation.
        Capital regulation should be tailored. The tailoring
    principle is especially critical in the United States given the
    complexity of our economy, the largest economy in the world,
    the geographic spread. We have a banking sector whose structure
    is very different from most other countries with our many
    different sizes of banks, and we need to avoid that barbell.
        Wisely, the banking regulators did not impose every new
    complexity on every banking organization, but it is fair to
    question whether we are appropriately tailored and whether
    there should be some indexing particularly for--as the economy
    grows. All policy choices have tradeoffs, but our focus should
    be on the real economy, jobs, American competitiveness, and
    wealth creation.
        This should not be a red team/blue team issue. We should
    approach it in the spirit of bipartisanship as a purple issue
    and in that spirit, I am wearing a purple jacket today.

        [The prepared statement of Mrs. Tahyar follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Barr. Thank you. Very good.
        Mrs. Eversole, you are now recognized for your testimony.

      STATEMENT OF AMANDA EVERSOLE, PRESIDENT AND CHIEF EXECUTIVE
                   OFFICER, FINANCIAL SERVICES FORUM

        Mrs. Eversole. Great. Thank you, Chairman Barr, Chairman
    Hill, Ranking Member Foster, and Ranking Member Waters, members
    of the subcommittee. My name is Amanda Eversole, and I am
    president and CEO of the Financial Services Forum, which
    represents the eight global systemically important banks, or G-
    SIBs, headquartered in the United States.
        Every day, forum members and their nearly 700,000 employees
    across this Nation provide the capital that fuels America's
    economy. Forum members provide nearly half of all consumer
    lending by banks in the United States by helping Americans
    purchase their first homes, buy a family car, or start a
    business.
        Forum members also support our vibrant, highly liquid
    capital markets, ensuring that they remain the envy of the
    world and forum members play a critical role in meeting the
    funding needs of other financial institutions, including
    community and regional banks.
        Above all, we remain committed to ensuring a strong,
    stable, and healthy financial sector and economy.
        The U.S. G-SIBs have never been more capitalized and more
    resilient. They are subject to the most stringent regulatory
    standards among both U.S. and foreign competitors. Over the
    past 15 years, the U.S. G-SIBs have tripled their capital and
    now maintain more than $1 trillion in high-quality capital, but
    more capital is not always better. There are economic tradeoffs
    to higher requirements. According to academic research, a 3
    percent increase in required capital costs can cost the U.S.
    economy between $100-and $150 billion per year and it is
    critical that we get the balance right.
        After years of post-crisis implementation, now is the time
    to modernize large bank capital regimes so U.S. banks can
    better support American families, small businesses, and our
    capital markets.
        We appreciate efforts by the administration and regulators
    to take a comprehensive approach to capital. There are three
    important factors that should be considered as this committee
    explores this issue further.
        First, capital requirements must be supported by data and
    calibrated accordingly. The Basel III Endgame proposal from
    2023 serves as a prime example. That proposal and the
    regulatory approach to the Basel III Endgame would have
    increased capital for forum members by 25 percent without any
    clear justification or analysis. More than 97 percent of
    commenters raised concerns with the proposals, and 86 percent
    of those comments came from outside of the banking industry,
    which is an important fact to note.
        Capital rules have a clear and significant impact on
    homeowners, small businesses, retirees, manufacturers, and
    farmers. It is critical that we take the economic impacts into
    consideration when determining capital rules, and we look
    forward to the revised Basel III Endgame proposal that meets
    the needs of the U.S. economy.
        Second, several aspects of the large bank capital framework
    make it harder for U.S. banks to compete, pushing activity to
    foreign banks and less regulated nonbanks. This migration of
    risk makes the system less safe and less stable.
        The G-SIB surcharge is perhaps the best example of a self-
    inflicted disadvantage with our foreign competitors. The U.S.
    approach to the G-SIB surcharge is nearly twice that of our
    foreign competitors, resulting in an additional $100 billion in
    capital that could be deployed into the U.S. economy.
        We appreciate the commitment by regulators to review this
    rule, and we look forward to a proposal that will harmonize the
    U.S. G-SIB surcharge with the international standards to better
    meet the needs of U.S. business and hardworking American
    families.
        Third, enhanced transparency and public accountability is
    the bedrock principle of good government. The Federal Reserve's
    initiative to improve the transparency of stress testing models
    and scenarios will improve bank risk management, reduce
    volatility, and allow banks to better serve their clients and
    customers. We look forward to providing our comments on this
    proposal.
        The world has changed over the last 15 years, and
    regulations have not kept pace. Thankfully, regulators have
    begun to address this problem by recalibrating the enhanced
    supplementary leverage ratio, a move that will enable banks to
    intermediate the U.S. Treasury market without sacrificing
    overall financial stability. We look forward to continued
    progress in this important area.
        Now is the time to modernize capital requirements so we can
    unleash our full economic potential, boost lending to small
    businesses and consumers, and drive America's economy forward.
    Of course, we can do that while protecting the safety and
    soundness of the best financial system in the world.
        Thank you for the opportunity to testify today, and I look
    forward to your questions.

        [The prepared statement of Mrs. Eversole follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Barr. Thank you.
        Mr. Olmem, you are now recognized.

     STATEMENT OF ANDREW OLMEM, MANAGING PARTNER AND CO-LEADER OF
               THE FINANCIAL SERVICES GROUP, MAYER BROWN

        Mr. Olmem. Chairman Barr, Ranking Member Foster, Ranking
    Member Waters, and the members of the subcommittee, I
    appreciate the opportunity to testify today on rightsizing U.S.
    bank capital framework. My testimony is given in my personal
    capacity and not on behalf of Mayer Brown or any of its
    clients.
        I want to start by commending the subcommittee for holding
    this hearing because capital requirements are at the core of
    effective bank regulation. They have a major impact on the
    safety and soundness of the banking system as well as on the
    overall economy and each American household. It is, therefore,
    critical that they are appropriately calibrated.
        This committee's oversight of the prior Basel III Endgame
    proposal played a valuable role in raising bipartisan concerns
    about its potential adverse consequences. Those concerns
    prompted the banking regulators to pause and reconsider the
    proposal. Thanks to this committee's work, the Basel endgame is
    moving in a better direction.
        As the subcommittee now prepares to evaluate the upcoming
    revised Basel III Endgame proposal, I have included in my
    written testimony several recommendations for your
    consideration. I concur with the prior remarks of my panelists
    about the importance of basing capital requirements on the best
    data and research available and that choices about capital
    requirements are public policy choices.
        I would like to highlight three additional points from my
    written testimony.
        First, it is important to view any capital proposal within
    the context of the larger regulatory reforms the banking
    regulators are currently undertaking. The most important, in my
    view, of these is the ongoing reform of bank supervision.
        Effective supervision is an essential companion to capital
    requirements because supervisors can identify and address risks
    that do not show up on balance sheets. Unfortunately, bank
    supervision has become far too bureaucratic, with supervisory
    matters lingering for years unresolved. Supervision should be
    focused on identifying problematic and material risks,
    addressing them, and returning a bank to normal operations.
        Reforming bank supervision will facilitate better
    compliance with bank capital requirements, as well as faster
    resolution of problems with bank capital and other safety and
    soundness matters. The banking regulators' efforts to reform
    banks' supervision should have Congress' full support.
        Second, one-size-fits-all regulation can undermine
    competition and the ability of banks to devise unique business
    models to serve their communities and customers. As noted, to
    address this problem, Congress has statutorily mandated in both
    the Dodd-Frank Act and in the Economic Growth, Regulatory
    Reform, and Consumer Protection Act, known as S.125, that the
    banking regulators tailor enhanced prudential regulation. This
    mandate sensibly seeks to prevent a $300 billion bank from
    being regulated in the same manner as a $2-, $3-, or $4
    trillion bank.
        However, changes in the marketplace and inflation can push
    banks into inappropriate tailoring categories. Given the clear
    congressional mandate, the banking regulators have reasonable
    grounds for revising and updating the existing tailoring
    categories.
        Finally, it is important to consider the vital national
    interest at stake in ensuring that the U.S. has the world's
    safest, most sophisticated, and technologically advanced
    financial regulatory system. The U.S. benefits greatly by being
    the world's financial capital, where all major financial
    institutions want to participate and invest.
        These benefits include lower financing costs for, not only
    U.S. consumers and businesses, but also for the Federal
    Government's now $38 trillion debt. Furthermore, the dynamic
    $30 trillion U.S. economy requires an equally dynamic financial
    system that can fund the remarkably diverse and complex needs
    of consumers and businesses.
        Unfortunately, U.S. bank regulation has diminished the
    attractiveness of the U.S. market and made the banking system
    less innovative and less adaptable. These trends need to be
    corrected; otherwise, Americans will face higher costs of
    living in the short run and will build wealth at a slower pace
    in the long run.
        The finalization of the Basel endgame proposal, updating
    the tailoring thresholds, and reforming bank supervision are
    important steps for modernizing U.S. bank regulation and
    ensuring that the U.S. has the banking system it needs to see
    the economy thrive and American households' living standards
    rise.
        Thank you.

        [The prepared statement of Mr. Olmem follows:]
       [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Barr. Thank you.
        Mr. Flood, you are now recognized for 5 minutes.

      STATEMENT OF MIKE FLOOD, HEAD OF CENTER FOR CAPITAL MARKETS
               COMPETITIVENESS, U.S. CHAMBER OF COMMERCE

        Mr. Flood of Nebraska. Good morning. Chairman Barr, Ranking
    Member Foster, Ranking Member Waters, members of the
    subcommittee, thank you for the opportunity to testify on
    rightsizing the U.S. bank capital framework. My name is clearly
    the other Mike Flood.
        With over 27 years of experience in the financial services
    industry, I am honored to represent the U.S. Chamber of
    Commerce, the world's largest business association representing
    businesses of all sizes.
        Capital decisions affect every consumer and business in
    your district, whether they are a first-time home buyer, a
    local tailor, or a new business. Since the release of the
    previous Basel III Endgame proposal in 2023, both parties in
    Congress, numerous State and local governments, industry and
    bank customers have all raised significant concerns.
        In reaction, the previous Fed Reserve Vice Chair Barr
    recognized that not only raising capital but raising it beyond
    global standards should be recalibrated. We applaud the current
    leaders of prudential regulators for continuing this process,
    including updating the enhanced supplementary leverage ratio
    and reforming the stress testing framework.
        We thank the members of this committee also for your
    continued oversight and engagement.
        There are three reasons why businesses care about capital.
        First, banks supply a substantial majority of small
    business financing. Last year, banks provided 9.1 million small
    business loans, of which the G-SIBs comprise 25 percent.
        Two, increased capital increases costs or reduces credit
    availability. A Chamber survey of over 300 treasurers--not 300
    bank treasurers, 300 treasurers--makes clear that capital
    increases are felt by businesses and consumers. It found that
    87 percent of businesses have been negatively affected by
    financial regulation and, more importantly, 40 percent have
    decreased services to their customers.
        Furthermore, a Basel study stated that for every 1 percent
    increase in capital, we should expect a 13 basis point increase
    in loan spreads. Think about that if we were to increase
    capital by 20 percent.
        Furthermore, the Basel Committee itself said higher capital
    and liquidity requirements are soon to increase the cost of
    bank credit.
        Three, more capital is unnecessary. Results in statements
    from the regulators themselves do not support increasing
    capital.
        First, in the past three stress tests reveal that banks can
    withstand, quote, a substantial downturn, remain above minimum
    capital requirements, and lends to the U.S. economy. Two, bank
    capital has more than tripled since 2009 and let us not forget
    that coronavirus disease (COVID) was a real-life stress test.
    If you do not believe me, let us believe the results from the
    Federal Deposit Insurance Corporation (FDIC).
        Over the past 5 years, 11 banks have failed equally to a
    .052 percent failure rate. At the same time, bank charters have
    decreased by 3 percent annually with a mere 45 new charters
    granted.
        So what is the impact on your constituents? I am going to
    give you a few examples of the Chamber's analysis of the
    previous proposal found.
        One, private companies will pay more than public companies
    if we have excessive capital. Despite that 99 percent of U.S.
    companies are private companies, they are seen by Basel III
    Endgame as more risky than public companies. Quite frankly, it
    is hard to imagine, outside of taste, how Five Guys, a private
    company, and Shake Shack, a public company, are different.
        Two, lines of credit under Basel III Endgame would be more
    expensive. This is the monthly lifeblood of nearly any
    business. Your local tailor will pay more for the used line of
    credit and, oddly, pay more for the unused line of credit.
    Again, this is beyond global standards.
        Three, mortgages, credit cards, and automotives will cost
    more. Especially for constituents with low credit scores and
    individuals with low or moderate incomes will be most affected.
        In conclusion, at a time of significant affordability
    concerns, it is critically important to calibrate the entire
    bank capital structure to fit the size and complexity of the
    U.S. banking system. This does include all banks--local,
    community, regional, super-regional, national, international,
    and global banks.
        The Chamber appreciates the current regulatory efforts to
    update the capital framework and bring supervision back to
    materiality. We, therefore, urge regulators to adopt the
    following recommendations:
        Calibrate any final rule to preserve affordable lending,
    market-making liquidity, and a competitive U.S. banking system.
        Two, base requirements on robust economic analysis that
    considers the impact on lending and economic growth.
        Three, update and tailor capital requirements, as well as
    thresholds to reflect the size and risk profile of individual
    institutions for all categories of banks.
        Thank you, and I look forward to answering your questions.

        [The prepared statement of Mr. Flood follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Barr. Thank you.
        Finally, Mr. Johnson, you are recognized.

     STATEMENT OF SIMON JOHNSON, PROFESSOR OF ENTREPRENEURSHIP AT
                   THE MIT SLOAN SCHOOL OF MANAGEMENT

        Mr. Johnson. Thank you.
        Chairman Barr, Ranking Member Foster, members of the
    subcommittee, thank you for asking me to testify at this timely
    and important hearing. My name is Simon Johnson. I am a
    professor at MIT. I was previously the chief economist at the
    International Monetary Fund. I am a former board member at
    Fannie Mae. I am currently co-chair of the Chartered Financial
    Analyst (CFA) Institute Systemic Risk Council.
        I would like to make three points. The first is about the
    numbers. Tier 1 capital, as you know, is the strongest form of
    capital because it is fully loss-absorbing; this includes
    shareholders' equity and retained earnings.
        The supplementary leverage ratio, SLR, calculates the
    amount of Tier 1 capital in 13 large banks relative to their
    total leverage exposure, which includes total assets and
    certain off-balance sheet items, such as derivatives and loan
    commitments.
        The weighted average SLR for the eight American globally
    systemically important banks, the G-SIBs, peaks at close to 7
    percent in 2017, and it is now 5.8 percent. That is an increase
    in leverage. This is all from that publicly available data as
    compiled by the Kansas City Fed.
        European and Canadian G-SIBs are more leveraged, with an
    average SLR at 4.89 percent. Now, this is exactly the same
    relative situation as prevailed before the global financial
    crisis of 2008. The biggest European banks are more leveraged
    than the biggest U.S. banks, but when a crisis breaks, more
    leverage means more vulnerability for individual banks and the
    financial system. Thank goodness that the FDIC pre-2008
    resisted attempts to allow more leverage in the U.S. banking
    system. By insisting on lower leverage, the FDIC under Sheila
    Bair, helped protect the taxpayer, limit the fiscal damage, and
    reduced the number of jobs lost when the crisis hit.
        It is not--and I repeat ``not''--to the European advantage
    that their big banks are more leveraged. That is a major
    vulnerability for them, exposing their taxpayers and their
    workers and their nonfinancial businesses to more risk. Do not
    race the Europeans to the bottom.
        Second, unfortunately, the FDIC today is in the exact
    opposite position to what it was before 2008 and just signed
    off, along with the Federal Reserve and the SEC, on reducing
    the SLR.
        Now, based on the regulators' own calculations, this recent
    rule change will allow the SLR--so, again, setting the maximum
    leverage for big banks--to reach around 3.8 percent for those
    13 mega banks and we are now discussing how to adjust risk-
    weighted capital and stress tests and other things that will
    allow the banks to move closer to that leverage.
        The regulators have clearly signaled that we are heading
    back toward the leverage ratios that prevailed before the
    crisis of 2008 and we are doing this without a proper cost-
    benefit analysis, without any kind of robust economic analysis.
    What we need is a careful and complete study from the
    regulators of what will happen to the system's stability with
    lower capital requirements. They have not provided this despite
    repeated requests from responsible parties.
        Third, the arrival of artificial intelligence is a game
    changer for finance, as was discussed and emphasized at the
    House Financial Services Committee hearing yesterday. One
    presumed impact is that decisionmaking will speed up globally.
    AI agents will rush into trades pushing up asset prices. These
    same algorithms will also rush out creating various kinds of
    potential runs and fire sales. We are quite likely to
    experience, as Dr. Foster said, various forms of AI agentic
    runs on our banks. What happened to Silicon Valley Bank will
    seem slow by comparison.
        Bank capital protects against insolvency. This is the loss-
    absorbing buffer. If the world is becoming more unstable, we
    should want our big banks to have more loss-absorbing capital.
    Instead, the regulators are pushing in a reckless manner toward
    allowing less capital.
        In summary, capital of the largest banks is eroding. This
    undermines our system and our economy. It makes us weaker in
    the global economy. In 2008, we barely had enough capital in
    our biggest banks. Since 2008, the world has become more
    unstable--pandemic, global financial crisis, rise of China, AI.
        The U.S. economy needs a resilient banking system. The
    regulators are failing you and failing the American people when
    they allow leverage to rise to pre-2008 levels.
        Finally, I would like to quote from the National Security
    Strategy just released by the White House. Quote starts, We
    want a resilient national infrastructure that can withstand
    natural disasters, resist and thwart foreign threats, and
    prevent or mitigate any events that might harm the American
    people or disrupt the American economy. No adversary or danger
    should be able to hold America at risk, end quote.
        To achieve this goal, as stated in this document, you need
    more loss-absorbing equity capital in the bank system, not
    less.
        Thank you very much.

        [The prepared statement of Mr. Johnson follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Barr. Thank you, Mr. Johnson.
        We are now going to turn to member questions. I now
    recognize myself for 5 minutes for questioning.
        Mrs. Eversole, the word of the day in Washington is
    affordability and making life easier for the American people by
    lowering the cost of living. How can regulatory tailoring and
    enhancing U.S. bank competitiveness through right-sizing the
    capital framework lower the cost of capital and help lower the
    cost of living for Americans?
        Mrs. Eversole. Mr. Chairman, thank you very much.
    Affordability is a huge issue and I think, as it relates to
    bank capital, one size does not fit all. So we have a
    sophisticated system. In fact, the best, most highly liquid,
    vibrant capital markets in the world, and we have the ability
    to make sure that we get it right. I appreciate the fact that
    this hearing is happening today.
        The Basel III Endgame, getting--making sure we get that
    right is a perfect example. If we can have--if we can get that
    done, the impacts go to small businesses, Main Street through
    lower cost of borrowing, and that helps drive the economy.
        Chairman Barr. Yes. Getting this wrong and overregulation
    of the banking sector will drive up the cost of credit, period.
    That is a simple and absolutely true fact, and that is why we
    have got to get this right.
        Mr. Flood, miscalibrated capital rules are extremely
    burdensome on small institutions that keep credit flowing to
    Main Street America community, and reasonable banks are often
    the only lenders serving rural towns, family farms, small
    manufacturers, and first-time home buyers.
        What are the downstream effects of inflated risk weights
    under the Biden Administration's Basel III Endgame that would
    affect community and regional banks' ability to provide
    mortgages, agricultural loans, and small business credit?
        Mr. Flood. Thank you for the question. Mr. Barr, when we
    surveyed those 300 corporate treasurers, we found that most
    small businesses use banks for their financing. They use an
    average of four banks. As I think you can see from our
    analysis, the number of banks in the country is decreasing.
        So the simple answer is, A, your constituency will either
    see increased costs or lack of availability of credit at banks.
    Second, we also--or, third, we also know that increased
    compliance costs affect every bank, and we have seen how that
    has led to consolidation at the lowest levels.
        Finally, community banks like to replenish their capital.
    How do they do that? They sell loans or products to bigger
    banks. If those bigger banks have increased costs or increased
    risk weights for those same products, they are going to charge
    more to your smaller bank. It is a downstream effect.
        Chairman Barr. Yes. This is trickle-down regulation. It is
    not just about the big banks. It is about community banks and
    making sure that the capital framework does not inadvertently
    shrink access to credit in underserved markets.
        Mrs. Tahyar, in 2023 when the Vice Chair Barr--the other
    Barr--proposed the Basel III Endgame, it received bipartisan
    and nearly universal criticism from lawmakers and the public.
    In fact, more than 97 percent of the comments on the proposal
    were negative, with more than 80 percent of those comments
    submitted by interested parties outside of the banking sector.
        The message was clear that we needed a reproposed endgame
    but even under the reproposed endgame, the expectation is that
    U.S. banks will face materially higher risk-weighted assets
    from revised credit market and operational risk frameworks, yet
    the leverage ratio remains unchanged, which creates a potential
    for double counting of capital requirements.
        How should regulators appropriately account for reforms to
    Basel III Endgame to ensure that bank leverage ratios do not
    bind institutions during low-risk, high-liquidity environments?
        Mrs. Tahyar. Double counting is a real issue, Chairman
    Barr, and I am glad you asked the question.
        I think what happened in 2023 is that the banking
    regulators did not do a bottoms-up data-driven analysis, and
    currently it is a bottom-up data-driven analysis that is being
    promised by the banking regulators. The leverage ratio became
    the binding constraint as Treasury markets expanded given the
    fiscal situation.
        My own view is that there should be a real rethink of the
    leverage ratio which affects, as you know, not just the biggest
    banks, but all of the banks.
        Chairman Barr. Thank you.
        Mr. Olmem, final question. As you know, Fed Vice Chair of
    Supervision Michelle Bowman has said that the regulatory
    thresholds should not be static, and FDIC Acting Chair Travis
    Hill recently finalized a rule that seeks to index regulatory
    thresholds on a biennial basis.
        I have introduced legislation, the Tailoring and Indexing
    Enhanced Regulations (TIER) Act, to ensure that our regulatory
    system is not static and that it is designed with growth in
    mind, which--while maintaining safety and soundness.
        Can you please speak to the importance of indexing
    regulatory thresholds and how this will help ensure banks are
    holding appropriate capital that accurately corresponds with
    their size, risk, and scope of activities?
        Mr. Olmem. Thank you for that question, Mr. Chairman Barr.
        Put simply, if we do not index the thresholds, eventually
    we will not have tailoring because over time, inflation will
    move institutions into higher and higher categories.
        Already since 2019, when the categories were adopted, we
    have seen inflation run at about 25 percent, nominal gross
    domestic product (GDP) is up 30 percent that are already
    threatening to put institutions into higher categories simply
    because of nominal changes in the economy.
        Chairman Barr. Thank you.
        My time has expired, but I will just note for the record
    that when Dr. Foster and I traveled to Basel, Switzerland, it
    was interesting to hear the Basel Committee themselves say that
    Vice Chair--former Vice Chair Barr's proposal had gold-plated
    American capital requirements over and above what they
    recommended.
        With that, I will now recognize the ranking member of the
    subcommittee, Dr. Foster, for 5 minutes for questions.
        Mr. Foster. Well, thank you and thank you for referring to
    our bipartisan trip to visit all the banking centers.
        It was interesting because there was a lot of anxiety in
    the European banking sector that, despite their lower capital
    requirements, they were being outcompeted by the big banks of
    the United States, so that the argument--I think one of the
    witnesses here referred to it as a trope, that the regulators
    should look at the fact that we are actually increasing market
    share in our--with our giant banks compared to our offshore
    competitors as something that maybe the regulators should not
    look at.
        I think if we are losing market share, the regulators
    should look at it and the fact that we are increasing market
    share, the regulators should consider in whether our capital
    requirements are too stringent.
        My biggest worry about this is that we are arguing about
    the last few basis points of capital requirements when the big
    elephant in the room is artificial intelligence, agentic AI,
    and everything that is going to disrupt financial services and
    the businesses that many banks have loaned money to.
        This is something--I was very disappointed that we had--it
    was a--I guess it was, I think, Mrs. Eversole's testimony when
    she made reference to the commentators on this. You cannot open
    any financial journal or anything without seeing people comment
    on the bursting of the AI bubble and are we really robust
    against that. There is probably no commentator that has not
    opined on that.
        Yet when we recently wrote a letter to FSOC to say, hey,
    could you please have a look at this? We are unable, frankly,
    to get any of my Republican colleagues to cosign this, and all
    of the Democrats, essentially, signed on to it and so I think
    this is why we created FSOC, to keep--to look around the
    corner.
        Mr. Johnson, you actually mentioned this in your testimony.
    Could you say a little bit more about what AI could do to the
    stability of our financial system?
        Mr. Johnson. Yes. I think, Dr. Foster, you are totally
    right, this is the big issue of the day and the days to come.
    We do not know, nobody knows exactly what will be the impact of
    AI on the American economy or on the financial system, but it
    does seem very likely that it will increase volatility, there
    will be relatively few foundation models, there will be
    relatively few big tech players producing those models.
    Everyone will be using some versions, some application of those
    models. So there will be a lot of crowding in terms of spotting
    opportunity and crowding in. So we may well get more run-ups in
    asset prices but also crowding on the way out.
        So you referred to the run from Silicon Valley Bank which,
    of course, we know was speeded up by social media. No AI was
    involved. AI can make decisions much faster than humans can. So
    once they spot a weakness or a perceived potential insolvency
    because of capital deficiency, it will be seconds, not minutes,
    before the deposits run out the door.
        Mr. Foster. Yes. Well, in fact, they can respond to rumors.
    Many of the AI--personal AI agents will be under standing
    orders that if you read a rumor out on Reddit that your bank is
    in trouble, get my money the heck out and it will be--things
    like customer loyalty will be a thing of the past.
        This is not only going to affect banks. It will affect
    every business that depends on customer loyalty, because the
    personal agents are not going to be loyal; they are going to be
    instructed to get the best price, and this is going to squeeze
    the profit margin out of every consumer-facing business in the
    country. There are going to be a lot of loans that will go bad
    because business models will blow up that way. So this is not
    the time to lower capital requirements.
        This is--in my bipartisan way, I am also wearing a red pin
    here. This is the red pin of the 110th Congress where, under a
    Republican President and under Republican regulators, this pin,
    I had the pleasure of voting for the Troubled Asset Relief
    Program (TARP) and there are situations where the Republicans
    who voted for the lower capital requirements and deregulation
    refused to provide the votes to rescue our economy, and
    rescuing our economy had to be done with Democratic votes.
        So this is a foundational memory, and many of us on this
    side of the aisle who lived through that. We do not repeat
    history, but it echoes. We are in a situation when we have a
    historically unpopular President once again and regulators who
    are--have this mantra of deregulate, deregulate, deregulate,
    modernize all of the--all of the words--you can read in 2007,
    the exact same mantra.
        So there are things that make sense. So we have to--
    punishing bank capital because they are holding Treasurys. I
    never thought made sense, and that is the sort of thing we
    could be looking at. The idea of just lowering capital
    requirements in general right now until we understand the
    effect I think is premature.
        So I would like to thank you all for your testimony. It is
    nice to see that the arguments have not changed in 15 years,
    but the future is coming at us fast, and we should look
    forward, not backward.
        Thank you.
        Chairman Barr. The gentleman from Michigan, Mr. Huizenga,
    is now recognized.
        Mr. Huizenga. Thank you, Chairman Barr and good to see our
    panel again, or most of you, and welcome, Mrs. Eversole.
        Mr. Flood, I am going to start with you. A lot of
    discussion this morning has been centering around how higher
    capital requirements for financial institutions will be
    harmful. Obviously, not everybody agrees with that on the
    panel, but I happen to agree with that sentiment that it is or
    can be harmful.
        What is often overlooked, though, from my perspective, is
    Main Street America, and that is really what I am concerned
    about those small businesses that are the backbone of local
    communities that we all represent.
        I am a small business owner myself. Family is in
    construction. I have lived through the ups and the downs, and
    the downs are tough. We have had to rely on lines of credit. I
    recently actually ended my own line of credit because it was
    costing me while I was not actually accessing it. My business
    partner, my cousin and I, looked at each other and were like,
    well, this makes zero sense.
        So we have got a lot of issues, as you can see it, as it
    pertains to small businesses but just give us your thoughts on
    how this affects maybe Main Street in a small entrepreneurial
    or, in my case, a third-generation family business.
        Mr. Flood. Sure. I imagine your business is a private
    business?
        Mr. Huizenga. Yes. Huizenga Gravel is not a publicly traded
    company, thank goodness, and I have no intention of subjecting
    ourselves to the Securities and Exchange Commission (SEC).
        Mr. Flood. Well, that puts you at 99 percent of U.S.
    companies.
        Mr. Huizenga. Yes.
        Mr. Flood. I will give you three concrete examples. The
    first one was the line of credit, and you have clearly
    experienced that. What surprised me is the risk weighting for
    both the funded and unfunded increase. There is no reason why
    and it goes above gold-plated levels.
        So you have just said what happens. One, your line of
    credit either gets more expensive or they shrink it. So if you
    need more money, you will have to go get another one, and I am
    sure they would see that as riskier.
        Mr. Huizenga. Not to mention, by the way, when the
    regulators come in and say, oh, by the way, even though we
    are--we have been banking with the same bank for three
    generations, we are not sure of their credit risk.
        Mr. Flood. Correct. Simply because--two, simply because you
    are a private company, as an example of excessive capital,
    Basel III Endgame treats you differently. Let us assume that a
    public company has an interest rate of 7 percent and let us
    presume a 12 percent return on capital. That same private
    company is going to have a 10.5 percent interest rate. That is
    how different it is.
        Then there is the third part, which is--I want to bring up
    something called risk mitigation. It is exactly what it sounds
    like, and we mix that up with derivatives a lot. So now let us
    think about a farmer who wants to mitigate their crops because
    they have seen climate issues. So they go to the bank, and they
    say, hey, I want to buy a hedge from you, and the bank should
    say, that is great, that makes you less risky to me and me less
    risky to you , but somehow, oddly, we have priced that higher.
        So the hardest thing for our businesses to understand is--
    --
        Mr. Huizenga. So lowering risk is actually going to cost me
    more than if I had just maintained the status quo?
        Mr. Flood. Those are some of the confounding things in the
    regs that we have.
        Mr. Huizenga. Okay. Mrs. Eversole, I want to touch base on
    you. You represent the largest of the banks. Does the current
    framework disadvantage U.S.-based institutions compared to
    their international peers?
        Mrs. Eversole. Thank you very much, Congressman, for the
    question.
        Indeed, it does. The fact of the matter is, even if you
    look at something like the G-SIB surcharge, we are twice that
    of our international competitors and I think that we are in----
        Mr. Huizenga. We just heard that is necessary and maybe we
    do not have enough capital.
        Mrs. Eversole. Respectfully, I would--I would disagree with
    that premise. I think it is a perfectly appropriate
    conversation to ask the question, is more always better?
        To your earlier question, it does not--it is not free. It
    comes at a cost, and the cost is borne by consumers, the very
    people that need these----
        Mr. Huizenga. It is not the banks?
        Mrs. Eversole. I think from a consumer perspective. You can
    see the cost of credit is increased by higher capital.
        Mr. Huizenga. Mrs. Tahyar, let me switch slightly on this.
    What are the macro effects on the economy of this one-size-
    fits-all approach?
        Mrs. Tahyar. Well, I think what it is doing is it is
    leaning us toward the dreaded barbell. I think the statement
    was made that our biggest banks are more competitive than the
    EU banks. That is clearly right. They are outcompeting. If we
    look at the mid-size range banks, say from 10 up to about 250
    or more, they are--they and the community banks are the engines
    of growth for small-and medium-sized enterprises, for religious
    entities, for non-governmental organizations (NGOs) in smaller
    towns, and the macro impact on them--and then we are now at a
    place where we want to have a lot of more credit in the
    heartland of the country--Michigan, where you and I are both
    from--and that is going to be hard to get if we insist on gold-
    plating of capital standards.
        Mr. Huizenga. Mr. Chairman, I am just afraid that we are
    losing the other end of that barbell with the smaller community
    banks and those regional banks.
        So with that, I yield back.
        Chairman Barr. The gentleman yields.
        The gentlewoman from California, Ms. Waters, is now
    recognized.
        Ms. Waters. Thank you very much.
        Professor Johnson, while Republicans may want to roll back
    capital requirements, I think there is a much more important
    and bipartisan policy that Congress should consider.
        In 2023, after Silicon Valley Bank had the fastest bank run
    in the United States history, many businesses got nervous about
    their payroll accounts being held by smaller banks and moved
    their funds to the mega banks thinking they were too big to
    fail. A year later, a much smaller bank in Oklahoma failed as
    well but their failure was too small for regulators to use
    emergency tools to protect depositors. The failure resulted in
    small businesses, churches, and other customers with more than
    $250,000 to losing some of their money. It was the 37th time
    uninsured depositors lost money in a bank failure since 2007.
        To sum up, small businesses that banked at Silicon Valley
    Bank were protected, while those that banked at this Oklahoma
    bank lost money. How is that fair?
        My bill, H.R. 4551, the Employee Paycheck and Small
    Business Protection Act, would address this problem with a
    data-driven approach to expand deposit insurance in a
    deliberate way, considering the benefits and costs to ensure a
    higher threshold is set so community banks and credit unions
    can compete with small business deposits in their communities,
    and those businesses and their workers are better protected.
        My bill would also provide for emergency transaction
    account guarantee, or TAG, authority allowing the FDIC to
    temporarily insure deposits for up to 9 months without needing
    congressional approval first.
        I appreciate that Chairman Hill held the hearing to
    consider my bill, and we had a good discussion.
        Are these reasonable reforms that this committee should act
    on for the benefit of community banks, credit unions, and the
    communities they serve, Mr. Johnson?
        Mr. Johnson. Yes, Congresswoman. Those are very reasonable,
    highly well-informed proposals, and I do think further study--
    the data-driven approach that you are recommending is exactly
    the right way to go about it.
        Ms. Waters. Well, thank you very much. We have been in
    considerable discussion, and much of the discussion is around
    how much more should be protected. I hope we get to some
    resolution on it because I think it is very important.
        Let me move on and talk a little bit about bank capital.
    Professor Johnson, over the course of our Nation's history, we
    have routinely seen banks fail due to capital inadequacy,
    whether it was the savings and loan crisis of the 1980s and
    1990s or the 2008 global financial crisis that cost our economy
    trillions of dollars and cost millions of families their jobs,
    homes, and life savings. Moreover, research shows that better
    capitalized banks lend more, including in times of stress,
    compared to weak banks that lend less.
        Would you briefly discuss why strong capital requirements
    are so important and who suffers when capital levels are
    reduced too much?
        Mr. Johnson. Capital levels are important, Congresswoman,
    because that is the buffer against losses. When an individual
    bank is in trouble and faces potential insolvency, that is what
    causes a potential bank run. If those fears are spread across
    the broader economy, then you have a financial crisis just like
    the one we experienced in 2008 and that is devastating to small
    businesses, that is devastating to communities everywhere. The
    costs of that for economic growth are absolutely, absolutely
    enormous.
        So bank capital is a way that we attempt to reduce those
    risks. You cannot reduce them to zero, but we attempt to reduce
    the risk of devastating economic collapse.
        Ms. Waters. Well, I want you to know that they tell us that
    if you require too much capital, we will not have the money to
    lend to all of the small businesses that need money. Yet we do
    not see any real loans going to small businesses.
        What do you know about that?
        Mr. Johnson. Well, I think providing credit to small
    businesses is tremendously important, and that is why we have
    the Federal Reserve, and that is why the Federal Reserve sets
    interest rates and otherwise determines monetary policy,
    because they are affecting credit conditions. That is their
    responsibility.
        I think what we need from the banks is to retain strong
    community banks, strong credit unions, exactly with a deposit
    guarantee extension that you are proposing and the TAG. I think
    that combination will strengthen lending to those communities.
        If you are just going--providing support in crisis to too-
    big-to-fail banks--which is why they have a low cost of debt--
    that is not helping communities across America.
        Ms. Waters. Well, thank you very much.
        We had a markup on the floor yesterday, Incentivizing New
    Ventures and Economic Strength Through Capital Formation
    (INVEST) Act, and we were talking about capital formation. At
    some point in time, we need to talk about the responsibility of
    the banks instead of looking all over the world for more
    capital for small banks.
        I yield back.
        Chairman Barr. The gentlelady's time has expired.
        The gentleman from Texas, Mr. Williams, is now recognized.
        Mr. Williams of Texas. Thank you, Mr. Chair, and thank all
    of you for being here today. Good to see my friends.
        I am a small business owner in the great State of Texas. I
    am a car dealer, and the previous Basel III Endgame proposal
    would have pushed capital standards well beyond what a strong,
    stable banking system requires. As chairman of the Small
    Business Committee here in Congress, I am concerned that the
    proposal would limit credit access for small businesses,
    especially giving differing risk weights for loans to public
    versus nonpublic firms.
        So, Mrs. Eversole, what changes to the Basel III proposal
    would ensure equal credit access for small businesses like
    mine, or of all sizes, and why is this so important to get it
    right?
        Mrs. Eversole. Congressman, thank you very much for your
    question.
        Look, you have outlined it correctly. We need to update and
    change the risk weighting because there should not be a thumb
    on the scale for public companies versus private companies.
    There is an impact on more capital on the end users. What we
    need to do is ensure that we continue to have a strong economy,
    and you know full well that starts with small businesses.
        So we need to--we look forward to seeing that proposal. We
    appreciate the leadership of the vice chairman of supervision
    at the Fed, and we look forward to getting that right.
        Mr. Williams of Texas. Ninety-nine percent of the
    businesses are small right now in America.
        Mr. Flood, when regulators raise capital requirements,
    banks are forced to redirect more of their balance sheet toward
    meeting these requirements instead of supporting new lending--
    we have been talking about that--and that shift reduces the
    pool of credit available to small businesses that rely on
    steady access for financing day-to-day operations and growth,
    needing to mention payrolls. Even modest increases in required
    capital can drastically change a bank's lending capacity,
    tightening credit exactly where it is needed most.
        So for a small business trying to renew a line of credit or
    finance equipment, how directly would these higher capital
    changes translate into fewer dollars available to lend to the
    main thing we are talking about, Main Street America?
        Mr. Flood. Great question. Just to give you an idea, for
    the drawn part--just using, again, Basel III Endgame as example
    of excessive capital--for the drawn part of your line of
    capital, the risk weighting increases by 10 percent, again,
    above and beyond global standards. Oddly, for the undrawn part,
    it goes from 20 to 50 percent.
        So even for the money you are not using, it increases by 30
    percent. So likely your line shrinks or you pay more.
        Mr. Williams of Texas. Mrs. Tahyar, when government rules
    and regulations become overly complex, banks must dedicate
    significant time and effort to compliance rather than serving
    borrowers and strengthening their businesses, sometimes keeps
    you from making the loan. This can be especially challenging
    for institutions competing in global markets where other banks
    may face simpler or more modernized frameworks, and these
    burdens can affect everything from product development to long-
    term strategic planning.
        So my question to you, Mrs. Tahyar, does increasing the
    complexity of the Federal framework force U.S. banks to divert
    resources away from innovation, technology, and customer
    service, and does, at the end of the day, this reduce their
    ability to compete internationally?
        Mrs. Tahyar. Yes, sir, it does. In fact, if we look back,
    there are many wonderful changes that came out of the financial
    crisis, but the intense internal investment at banks in
    compliance personnel, risk personnel, technology to support
    them--and the same thing happening at the regulators--has
    massively increased complexity in the system.
        Makes it harder for Congress to engage in appropriate
    oversight, and AI may well change these things, but AI is
    something that we are going to have to look at carefully, and
    it needs to be controlled.
        It is just so hard to get the full weight of the internal
    bureaucracies that have been created at the banks, which just
    take away from the main mission.
        If I may, one minor, just quick comment. Capital absorbs
    losses, but it is not liquidity. A deposit run, which I agree,
    AI is going to make riskier, that is not going to be capital
    absorbing that loss. That is liquidity regulation or deposit
    insurance. Capital does not solve liquidity.
        Mr. Williams of Texas. Main Street America, keep it simple.
    Let it grow, employ people, pay taxes.
        I yield my time back. Thank you.
        Chairman Barr. The gentlewoman from New York, Ms.
    Velazquez, is now recognized.
        Ms. Velazquez. Thank you, Mr. Chairman.
        Mr. Johnson, I heard discussion this morning about
    affordability. I am glad to hear this because I never thought
    that it was a hoax.
        Can you talk about affordability for working class families
    in times of economic stress if the banks fail?
        Mr. Johnson. Absolutely, Congresswoman. So I think it is
    one of the great tragedies actually of our generation, the
    current America, that we went through this massive financial
    crisis in 2008, that was absolutely devastating to communities.
        It destroyed businesses. It completely disrupted the
    housing market. Many of the problems that we are struggling
    with today in terms of providing goods through competition and
    at reasonable prices with reasonable supplies, are because of
    that financial crisis.
        We did not build 4 million housing units after the crisis,
    and we have never built them, Congresswoman. We have never
    caught up.
        So for ordinary Main Street America, the financial crisis
    of 2008 was absolutely devastating and when we say there is a
    bailout, a bailout was provided--let us be very clear--it was a
    bailout to the creditors, particularly of large banks.
        The shareholders got a pretty good deal too, but the
    workers across the economy, the people who run nonfinancial
    businesses, the people outside of the financial sector were
    crushed. They were crushed because our banks took on too much
    risk. They did not have enough capital. We did not have the
    kind of protection that Chairwoman Waters was talking about in
    terms of the deposit insurance, not sufficiently.
        That combination is absolutely toxic to ordinary Americans,
    and we see it now reflected exactly in today's affordability
    crisis.
        Ms. Velazquez. We should not forget the lessons of COVID-
    19. Banks were sitting in capital, trillions of dollars in
    capital reserve, and yet, small businesses were not getting
    loans.
        It was Ranking Member Maxine Waters, myself, and Speaker
    Pelosi who called the Secretary of the Treasury, and we put a
    set-aside of $60 billion to be lent to underserved communities.
        Professor Johnson, you testified before this subcommittee
    last February. As part of your testimony, you stated, ``Over
    the business credit cycle, well-capitalized banks are better
    able to sustain lending than banks with relatively little
    capital, that fund themselves with more debt relative to
    equity.''
        Can you explain this statement, and what does the research
    tell us?
        Mr. Johnson. Well, the research and the practical
    experience, and what we have seen from around the world over a
    hundred years, is that when investors are concerned that a bank
    is deficient in capital, when they think there is a probability
    of insolvency--that is what happened with Silicon Bank, there
    was concern about insolvency; then you get a run that is again
    what happened in Silicon Valley Bank; and then the run spreads
    across other supposedly similar institutions.
        At the moment, humans make those decisions, but as Dr.
    Foster said, very soon it is going to be agentic AI making that
    kind of decision. So then we have concerns about insolvency
    becoming a systemwide run.
        If we do not have adequate tools, the authorities do not
    have adequate tools to respond to that, then you have a major
    financial crisis as we saw in 2008.
        So the best way, Congresswoman, to withstand that, the best
    way to ensure the kind of national security that the White
    House is talking about, is precisely to have a well-
    capitalized, resilient banking system to prevent this from
    happening.
        Ms. Velazquez. Is it not true that even after the first
    part of the Basel III capital regime was implemented in 2016,
    U.S. banks continued to lend and make record profits while the
    economy continued to grow?
        Mr. Johnson. Absolutely, Congresswoman. I am looking here
    at the data provided, or compiled, by the Kansas City Fed, and
    we can see that--exactly when you are discussing, in the mid-
    2010s--there was a lot less leverage in the big banks than
    there is today.
        By the way, the smaller community banks have maintained
    less leverage throughout this period than the big banks. That
    is their choice. That is not what is forced on by regulation.
    That is sensible, big--big practice.
        It is the big banks that have a large implicit guarantee
    from the U.S. taxpayer. That is what ``too big to fail'' means.
    Their debt is subsidized implicitly by the American taxpayer.
    That is ``too big to fail.''
        They, of course, want as much leverage as they can get,
    because their debt is super cheap because of the subsidy that
    they get from the U.S. Government.
        Ms. Velazquez. Thank you. I yield back.
        Chairman Barr. The gentleman from Tennessee, Mr. Rose, is
    now recognized for 5 minutes.
        Mr. Rose. I thank you, Chairman Barr and Ranking Member
    Foster, for holding this important hearing, and thank you to
    all of our witnesses for taking time to be with us today and
    lend your expertise.
        Mr. Olmem, the 2023 Basel III Endgame proposal would have
    raised capital requirements by 16 percent on average, with some
    banks seeing increases over 20 percent. The proposal received
    overwhelming criticism and was ultimately withdrawn.
        As regulators prepare a revised proposal, what are the most
    important principles they should follow to ensure the final
    rule appropriately balances risk weighting with the statutory
    mandate from Congress to tailor requirements based on bank size
    and risk profile?
        Mr. Olmem. Thank you for that question. Well, first of all,
    making sure that the risk weights are based on the best
    available data. Capital should correspond to risk. That is the
    first one.
        Two is simplicity. Capital requirements have become simply
    too complex and hard to really understand. I think it makes it,
    as Margaret was referring to, hard for the public to understand
    even what capital requirements are. It makes it very difficult
    for Congress to evaluate and also banks to comply with. So
    making them simpler is better.
        Certainly many banks are complex institutions, and there is
    a limit on how much simplicity we can get out of the system,
    but certainly any efforts in that direction are beneficial.
        I would also note too that it is really important to take a
    view of the totality of all the regulations that are going on.
    I think that is one of the things that I think Mr. Johnson
    misses, is that this is not 2008, and I think back in a way, I
    would have shared some of his concerns about capitalization
    levels but that is not where we are today.
        We have, in addition to all the reforms that have happened
    over the last 15 years--and we need to make sure they all work
    together--we have stress testing now, we have additional
    leverage ratios, we have the Volcker Rule, risk retention
    rules, right? We have a 2,000-page Dodd-Frank Act of rules on
    banks that have substantially changed their risk profiles.
        What the regulators are really doing right now is trying to
    make it all work together in a more efficient way so that the
    banking system is certainly safe and sound, but that it is--the
    distortions in credit allocation that are occurring because of
    the lack of coordination amongst this system, are diminished.
        Mr. Rose. Thank you.
        Mr. Flood, increased capital requirements have already
    driven banks out of certain business lines. Residential
    mortgages dropped from 81 percent bank origination in 2007, to
    just 39 percent by 2022.
        In your testimony, you discuss how the original Basel III
    Endgame would have particularly affected lines of credit and
    warehouse lending. Can you explain what happens to credit
    availability and pricing when capital requirements increase for
    these specific products?
        Mr. Flood. Absolutely. Couple things to think about. Again,
    when we Basel III Endgame which, in many cases, goes above and
    beyond global standards, with a line of credit--I think I had
    explained before--the funded part goes from 100 to 110 percent,
    and the unfunded goes--risk weighting moves from 20 to 50
    percent.
        So two things will happen. You either will pay more for
    your line of credit, or you will have a smaller line of credit
    so that when you need more, you will have to get another and
    pay more.
        Two--and, again, I will keep repeating this--a private
    company, 99 percent will pay more than a public company. My
    example again is, if you take a loan to the public company at 7
    percent and you assume a 12 percent return on equity, the
    private company is going to pay a 10 percent loan. It is a
    significant difference.
        Finally, the last one I would say is, there is a 10 percent
    capital charge on all retail. So put credit cards on the list,
    put autos on the list, and put mortgages on the list, and they
    all increase.
        Mr. Rose. Wow. Thank you.
        Mr. Olmem, you make the point in your testimony that
    capital is critically important, but it is not the only option
    in the regulatory tool kit. You note in your testimony that the
    banking regulators are undertaking important reforms to the
    supervisory process.
        Why is getting supervision right just as important as
    getting capital requirements right, and how do these work
    together to promote both safety and soundness and economic
    growth?
        Mr. Olmem. Thank you for that important question.
    Supervision can spot those risks that are not on the balance
    sheet, right? It is the way supervisors can exercise judgment
    and understand how a bank, its management, is addressing risks.
        The only way you can see that is knowing who the bank
    managers are, understanding their strategies, and working with
    them to understand how they are managing those risks.
        I think if you look at any major bank fail, supervision is
    usually at the core of the problems. Supervision also is an
    effective and efficient way to make sure that banks are
    properly regulated without excessive regulation.
        Mr. Rose. Thank you. My time is expired. I yield back.
        Chairman Barr. The gentleman's time is expired.
        The gentleman from Georgia, Mr. Scott, is now recognized.
        Mr. Scott. Thank you, Mr. Chairman.
        Ladies and gentlemen, this is a very important hearing but
    especially to our farmers--sectors like agriculture, that rely
    heavily on access to credit, risk management tools, and
    functioning derivative markets.
        Mrs. Eversole, let me come to you first. Our farmers
    operate in a world of volatility--from supply chain
    disruptions, fluctuating global demands, and extreme weather.
        There is no other sector of our economy that is as serious
    in terms of reseeing these obstacles. So let me just ask you
    this: Large banks play a key role in providing risk management
    for agriculture producers through futures options and swaps.
    Now, if Basel III makes it less attractive for our banks to
    provide these hedging services, what will be the direct effect
    on our farmers?
        Mrs. Eversole. Congressman, thank you very much for the
    question. I am also from the great State of Georgia, so I
    deeply appreciate the concern about farmers here.
        I mean, the reality is, it is going to make it more
    expensive and--I mean, you know very well how hard it is to
    manage risk. Is there enough rain, how is the--and that all has
    an impact on the crops.
        The ability to manage risk and understand where you are
    coming out of this, the Basel III Endgame has an impact on
    that, and it is not just about the farmers. It is about where
    those products go. They end up on store shelves.
        It also impacts the price of fuel, when you think about
    biofuels and ethanol and so, we need to get this right,
    Congressman.
        Mr. Scott. We have a good audience listening.
        Do you anticipate certain particular products would become
    less available to our farmers, particularly customized or
    longer-term derivatives?
        Mrs. Eversole. If we do not do this right, they will impact
    not only the cost but also the availability, and so we look
    forward to making sure that we get this proposal right and
    provide the certainty to America's farmers, especially in the
    great State of Georgia.
        Mr. Scott. Absolutely and go, Dogs.
        Mrs. Eversole. Go, Dogs. Thank you so much, sir.
        Mr. Scott. Excuse me. Cold.
        Let me turn to you, Mr. Johnson. Do you believe that
    farmers, businesses, face any disadvantages if foreign
    competitors, operating under slightly different capital rules,
    have lower hedging costs?
        Mr. Johnson. I think, Congressman, it is very important to
    study this question, and to examine exactly what kinds of
    market facilities and also subsidies are available to farmers
    and other competitors in other parts of the world.
        Sure, if there are unfair forms of competition, those
    should be looked at, and there are various, as you know, legal
    and regulatory remedies available under those circumstances.
        However, Congressman, I do think that having a strong,
    resilient banking system of our own, including community banks,
    including credit unions, including those which are just focused
    on farmers, is incredibly important.
        When I look at how much capital those institutions choose
    to have--they choose to have it; this is not what they are
    required to have--they have substantially less leverage than
    the ``too big to fail'' banks.
        So I think that we have some fantastic and very important
    financial institutions serving those communities, Congressman,
    and I think we should aim to strengthen them. They are,
    themselves, choosing not to over-leverage, which I really
    commend them.
        Mr. Scott. Finally, will U.S. farmers and businesses face
    any disadvantages from these foreign countries?
        Mr. Johnson. Unfair foreign competition is a problem,
    Congressman, and it needs to be addressed in a careful, well-
    regulated way, and we have a long tradition of doing that in
    the United States.
        I do think, though, that what we have currently, as a
    result of the reforms after 2008, with regard to strengthening
    the financial system and lowering the leverage--at least we
    lowered it until 2016, 2018--I think that was helpful to
    farmers. Allowing the big banks to become over-leveraged is not
    helpful to farmers.
        Mr. Scott. Thank you very much.
        Chairman Barr. The gentleman from Georgia's time is
    expired. I will just have to say, as the husband of a Georgia
    Bulldog, even though I am a Kentucky Wildcat, to you and Mrs.
    Eversole, go, Dogs.
        Mr. Scott. Way to go.
        Chairman Barr. The gentlewoman from California, Mrs. Kim,
    is now recognized for 5 minutes.
        Mrs. Kim. Thank you, Chairman and Ranking Member, for
    hosting today's hearing, and I want to thank our witnesses for
    being here. Thank you.
        As you may know, I have been keenly focused on modernizing
    the community bank leverage ratio to uplift our community
    banks. According to prudential regulators, around 85 percent of
    our community banks qualify for community bank leverage ratio
    (CBLR), yet only 45 percent of them actually use it.
        That is why I introduced Community Bank Leverage
    Improvement and Flexibility for Transparency (LIFT) Act that
    will modernize CBLR, to ensure that more community banks in
    California are focused on consumers, rather than regulatory red
    tape.
        Mrs. Tahyar, when you look at tailoring, do you agree that
    there is still more fine-tuning to be done regarding the
    community bank leverage ratio?
        Mrs. Tahyar. Yes, I think there is. The vice chair and the
    board have come out with a proposal, as you know, which would
    take it to 8 percent and also importantly, would give a longer,
    four-credit, grace period.
        It is not entirely clear to me exactly why only 40 percent
    of the community banks could benefit from it, but I think the
    cliff effect of a two-quarter grace period, which for a
    community bank is way, way, way, too swift, is part of the
    concern there.
        I also think in terms of tailoring, picking up on something
    that Andrew said, with growth in the economy and inflation, in
    a tailored system, that growth and that inflation will simply
    have banks grow into the next asset threshold when they really
    should not be there.
        Mrs. Kim. Thank you.
        Today we heard a lot about the leverage of large banks
    today. So Mrs. Tahyar, can you explain how low-risk activities
    like Treasury market intermediation are impacted by binding
    leverage requirements?
        Mrs. Tahyar. So--and this was obviously worse before the
    recent change in the enhanced supplementary leverage ratio
    (eSLR), but it is still part of the leverage ratio.
        The market for Treasurys has simply exploded with the
    increase in the deficit. That means that you have an impact on
    the market for Treasurys because those entities that would have
    been trading in Treasurys, if the leverage ratio becomes
    binding on them, they are going to stay out of the Treasury
    market.
        Now we are more dependent on non-banks or on foreign actors
    in the market for Treasurys. Maybe stablecoins will eventually
    make a difference. I know that is part of the hope, but what we
    have experienced in some of the kerfuffles in the Treasury
    market is certainly bound up with the fact that the classic
    players just have not been playing the way that they used to.
        Mrs. Kim. Thank you.
        As we continue to evaluate tailoring and capital
    requirements, the impact on small businesses must be kept top
    of mind. Many small businesses rely on affordable and reliable
    credit from regulated banks to grow and manage day-to-day
    operations.
        However, increased capital requirements, such as those
    proposed under Basel III and through the G-SIB surcharge, can
    raise the cost of lending and reduce credit availability.
        I want to ask you, Mrs. Eversole--yes, Eversole--how are
    these capital rules impacting small businesses' ability to
    access credit today, and what adjustments should regulators
    consider to ensuring that credit remains affordable for Main
    Street without compromising safety and soundness?
        Mrs. Eversole. Congresswoman, thank you very much for the
    question. I would note that my member companies have more than
    $100 billion in outstanding loans to small businesses today,
    and that is really important because we know that small
    businesses are the economic engine for growth in this country.
        The Basel III Endgame, as proposed in 2023, would have had
    inappropriate risk weighting that would have impacted small
    businesses negatively through the form of higher capital.
        I think, as I have mentioned today, higher capital is not
    always better, and it comes at a cost. I think the question
    about getting this right, making sure that in the proposal we
    look forward to from the Federal Reserve, hopefully as soon as
    possible, getting it right really matters.
        We want to make sure that America's small businesses are
    protected, but also can borrow money at a fair cost, so they
    can get to the business of growing their businesses.
        Mrs. Kim. I could not agree with you more. Thank you.
        Let us shift gears now. In today's era of banking, it
    appears that the success of your bank will not be dictated by
    innovation or competitive product offerings but rather by how
    you can handle the compliances costs as your financial
    institution continues to grow.
        We are almost forced to either defend Dodd-Frank as banks
    fail around us, or we find ways to tailor regulations to serve
    the dynamic economic rules that these financial institutions
    play.
        I am running out of time, but hopefully you will have time
    to answer this, Mr. Olmem.
        Has Dodd-Frank created the accurate, precise regulation
    that was expected, or has it created more regulation with
    little or to no benefit?
        Chairman Barr. Mr. Olmem, you are going to have to submit
    that answer in writing. The gentlewoman's time is expired.
        Mrs. Kim. Thank you.
        Chairman Barr. The gentleman from California, Mr. Sherman,
    is now recognized.
        Mr. Sherman. Thank you, Mr. Chairman. I think we all agree,
    if capital standards are too low, we face the risk of needing
    bailouts. If they are too high, our economy is smaller than it
    otherwise would be, but we should also agree that if you
    discriminate against certain borrowers and help other
    borrowers, you pick winners and losers.
        What is worse is if you pick the wrong winners and the
    wrong losers. Banking is too important to just focus on the
    bank. It allocates capital in a society dedicated to
    capitalism.
        Now, there is real risk in loaning money to Jack's Pizzeria
    in Tarzana, and we should state that fairly and have adequate
    reserves but we should not understate that risk just because
    the pizza is delicious. We should not understate that risk just
    because we love small business.
        When we look at Basel III's current configuration, we see a
    system designed to oppress, to discriminate against small
    business, new home buyers, and all home buyers, and U.S.
    taxpayers, for absolutely irrational reasons except for the
    fact that the people in Basel all just feel really comfortable
    with giant corporations and their long-term bonds.
        The first is to home buyers. First, there is a proposal
    here to increase the risk weight beyond the Basel levels for
    all home mortgages. Then, as I have commented before in this
    room, they ignore private mortgage insurance.
        So you have a system that discriminates against all home
    buyers, and then doubly discriminates against the first-time
    home buyers with the low downpayment that needs the private
    mortgage insurance.
        I have heard no defense of this. It is just people who jump
    up and down and say Basel, Basel, wonderful town, let us just
    do what is in the document, do not read it too carefully.
        Then we have intentional discrimination against small
    businesses in two ways: As Mr. Flood points out, if it is a
    public company, we discriminate in favor of them and against
    the private company.
        Second, small businesses do not pose an interest rate risk
    because they tend to have floating rates or short-term loans.
        The 30-year fixed-rate bond, is discriminated in favor of
    because we do not mark-to-market. Had we done that, we would
    have realized that Silicon Valley Bank had $17 trillion in
    unrealized losses.
        Even after that, we have got a system that discriminates
    against the small business and in favor of the competing 30-
    year corporate bond that is not mark-to-market.
        Then Mrs. Tahyar says we should also discriminate in favor
    of the crypto billionaire bubble creators. I just say, you do
    not have to be a genius to recognize that crypto assets are
    very volatile and then in the area of long-term bonds, we
    discriminate in favor of the corporate bond and against the
    Treasury bond by treating them both the same, even though the
    Treasury bond does not have the risk and the corporate bond
    does.
        So we have a system here, designed to unfairly discriminate
    against home buyers, particularly first-time home buyers, small
    business as opposed to publicly traded, big business, and the
    U.S. Government, its taxpayers. Gee, what could go--what is the
    matter with that?
        Mrs. Eversole, the Basel III Endgame proposal for 2023
    included higher risk weights for mortgages than recommended by
    the Basel Committee. As I pointed out, it discriminates in
    favor of publicly traded companies.
        How do your banks take capital requirements into
    consideration when making a small business loan or a home loan,
    and would the consequences of this be fewer loans for home
    buyers and small businesses?
        Mrs. Eversole. Congressman, you said it very well. The
    impact is straightforward. It would reduce the amount of loans
    made, and it would make the ones that are made more expensive.
        It was a bad, flawed proposal, and we need to see--we look
    forward to seeing the re-proposal that we expect as soon as
    possible.
        Mr. Sherman. Mr. Olmem, we have got a system that pretty
    much ignores private mortgage insurance (PMI). It does not
    follow the Federal Housing Finance Agency (FHFA) Enterprise
    Regulatory Capital Framework that Fannie and Freddie use.
        What should the Basel--what should this regulation do with
    regard to mortgages?
        Mr. Olmem. I think the risk weights that were originally
    put in the original proposal were too high and need to be
    revised.
        Mr. Sherman. Thank you.
        Chairman Barr. The gentleman's time is expired.
        We are going to just go out of order just for a minute for
    a parliamentary request from the gentleman from Texas.
        Mr. Green. Thank you, Mr. Chairman. Mr. Chairman, because I
    have three hearings taking place today, I ask unanimous consent
    that I be allowed to place questions in the record for the
    witnesses, and I beg that I be excused to take care of the many
    things that I have to do.
        Chairman Barr. Without objection----
        Mr. Green. Thank you very much.
        Chairman Barr [continuing]. so ordered.
        The gentleman from Georgia, Mr. Loudermilk--a lot of
    Georgia Bulldogs here today--the gentleman from Georgia, Mr.
    Loudermilk, is now recognized for 5 minutes.
        Mr. Loudermilk. Well, thank you, Mr. Chairman, and I
    appreciate everybody being here today.
        While all of America is likely not glued to their
    television watching this hearing, as they may be some other
    high-profile hearings. Nonetheless, the subject matter that we
    are discussing here is extremely important to all Americans and
    their livelihood and their financial stability going forward,
    so.
        For too long, financial regulators have taken one-size-
    fits-all approach to regulation, applying the same regulatory
    standards to small-and mid-sized institutions as they would to
    large and well-resourced institutions.
        While the biggest banks often have the resources to comply
    with the regulations, small firms and even some mid-size firms
    might struggle to meet these same regulatory requirements.
        So I am glad to see us focusing on this topic, and I am
    proud of the work that this committee and the Trump
    Administration are doing to right-size regulations on financial
    institutions of all sizes.
        Mrs. Tahyar, I have a bill entitled the Taking Account of
    Institutions with Low Operation Risk (TAILOR) Act, which would
    require that all future regulations be tailored to the risk
    profile of the regulated institution.
        Are there other proposals out there that you believe would
    provide the right balance between safety and soundness and
    minimizing harm to community banks?
        Mrs. Tahyar. Yes, I think so. There are a number of
    challenges that community and smaller banks face, among which
    is succession planning, because many of them are family owned--
    they are private companies--and making kind of M&A applications
    easier and more certain, I think would be helpful for community
    banks.
        We do not want the barbell, but we have got 4,000 banks and
    4,000 credit unions. So some degree of consolidation seems to
    me to be fruitful.
        Other elements on tailoring are indexing the tailoring, and
    then I think the shift that the vice chair has put in place,
    away from process-oriented supervision, which just takes so
    much--a community bank may have 15 people at the bank. A
    regional bank is not going to have the hundreds of thousands
    that a large bank has.
        So moving away from process checklists just to show things
    just to show things, minutes of meetings that--so that someone
    can look at them and check whether they did things. I think we
    will focus banks back on what they need to do and will focus
    the supervisors on material, financial, and operational risks.
        Mr. Loudermilk. I have had community bankers tell us that
    what they face is a death of a thousand cuts----
        Mrs. Tahyar. Yes.
        Mr. Loudermilk [continuing]. because of the requirements.
        With that in mind, are community banks at a structural
    disadvantage compared to large banks, who can have teams of
    compliance specialists when implementing these complex capital
    frameworks?
        Mrs. Tahyar. They are, and I think that is what the
    community bank leverage ratio is about, which has not been
    taken up as much as it could be. It is very much a structural
    disadvantage for smaller banks.
        To make a mortgage the paperwork looks like this.
        Mr. Loudermilk. Right, right.
        Mrs. Tahyar. That was not the way it was before, but
    mortgages were what community banks did in the small
    communities. They knew the people. They could make the
    mortgages.
        Now, it has been much, much harder, since Dodd-Frank, for
    community banks to make mortgages, and we have seen this flow
    out of mortgages from the banking sector to the non-banking
    sector.
        Mr. Loudermilk. That is interesting you bring up mortgages.
    One of the first bills that I passed after coming on this
    committee was to exempt institutions that have zero-interest
    mortgages, such as the nonprofits, Habitat for Humanity, to
    exempt them from this massive regulatory framework just to
    issue a zero-interest mortgage anyhow.
        In your testimony, you write that any capital framework
    will need updating and renewal from time to time as markets and
    technology change.
        Do you have any thoughts as to how the framework like that
    should be structured and how often those reviews should occur?
        Mrs. Tahyar. Well, under the regulations, they are supposed
    to be reviewed every 10 years, and that is very much not
    honored and that is for all of the banking regulations.
        I do not want to front-run whatever we are going to see a
    Basel III proposal from the banking regulators--quite soon, I
    hope--and so I do not want to make suggestions about what
    should happen in the onward, onward.
        What I did want to open folks' minds to is, we call it
    endgame----
        Mr. Loudermilk. Right.
        Mrs. Tahyar [continuing]. but it is not the end of the
    game. There have been mentions of agentic AI and various other
    changes. I just want us to keep in mind that there is no
    endgame. There is no end to keeping up with what is happening
    in technology in the market.
        Mr. Loudermilk. Right.
        Thank you, Mr. Chairman. I yield back.
        Chairman Barr. The gentleman yields back.
        The gentleman from Massachusetts, Mr. Lynch, is now
    recognized for 5 minutes.
        Mr. Lynch. Thank you very much, Mr. Chairman. I want to
    thank the witnesses for your help this morning.
        Mr. Johnson, earlier Mr. Olmem said, correctly, ``We are
    not in 2008.'' However, I was here in 2008 on this committee,
    and so we had--the reason we are not in 2008 is because of
    Dodd-Frank.
        We put in enhanced capital requirements. We put in greater
    prudential standards. We stopped the banks from engaging in
    some very risky activity.
        Now, if you listen to Michelle Bowman, the vice chair of
    the Fed for supervision, we are seeing a market change. We are
    moving away from those--the more demanding stress tests that we
    put in place. We are relaxing--well, there is a recommendation
    to relax the supplemental leverage ratio. We are not doing--
    like I said, we are not doing the stress testing, and again,
    those prudential standards are dropping.
        With all of that--let me also add, Vice Chair Bowman also
    gave a speech in Madrid last month where she said that banks
    should be able to compete with non-banks in cryptocurrencies
    and digital assets, which introduces a whole pile of risk into
    the banking industry.
        I think we are all in agreement that, as others have
    stated, capital requirements should reflect the risk that is
    being engaged in.
        So with all that, are we not heading back toward 2008?
        Mr. Johnson. Well, we are heading back towards a financial
    crisis of the magnitude or bigger than 2008, absolutely,
    Congressman. So you are right that Dodd-Frank helped a great
    deal, and that is what reduced leverage in the bank system, all
    of those measures combined.
        We can see, from the data provided through the Kansas City
    Fed, that leverage was at its lowest point in the mid-2010s,
    and since then, there has been an erosion, as you say, on
    multiple fronts. Vice Chair Bowman seems to be determined,
    along with the other regulators--the FDIC and the Office of the
    Comptroller of the Currency (OCC)--to allow more leverage.
        At the same time, the world around our financial system has
    become a lot more dangerous--financial panics repeatedly--
    including Silicon Valley Bank--the pandemic, the rise of
    China--absolutely transformative--the arrival of AI.
        Of course, you are right to emphasize crypto. Whatever we
    think about the future of crypto, whether it is bright or not,
    it is certainly highly volatile. If the regulators are allowing
    the banks to become more intertwined, either directly with the
    cryptocurrency or with an entity as itself speculating on
    cryptocurrencies, then that is a lot more risk.
        The only way to handle risk, from a financial system
    stability point of view, is to have more capital. The banks do
    not want to do it, Congressman, because they have these massive
    subsidies, the ``too big to fail'' subsidies.
        They love the leverage. Bank executives for the big banks
    get paid on the basis of return on equity unadjusted for risk.
    So they want to load up on risk. They do not want to care about
    capital. They want to shove the costs onto the taxpayer. They
    get the upside. The taxpayer and regular Americans get the
    downside. So that is 2008 again.
        Mr. Lynch. Yes. Let me ask you about, there is much faith
    being put on AI, but from this committee's perspective, we are
    seeing a small handful of AI firms that are really going to
    dominate, and so, their products will be used by hundreds,
    maybe thousands of banks. So they are all going to be operating
    off the same--the same recommendations, the same algorithms.
        Does that not create a concentration risk if multiple
    banks, perhaps hundreds of banks, are actually making decisions
    based on the same recommendations?
        Mr. Johnson. Yes. We will see concentration risk exactly
    there where banks make decisions, but also what Dr. Foster was
    talking about, which was agentic AI on the part of investors.
        So investors will be coming into assets and leaving assets
    really very fast. They will be interacting with other AI. They
    will be gaming the system. This is all volatility, Congressman,
    and the only way to ensure the system against volatility is
    with more capital, not less.
        Mr. Lynch. Right. So with all these added elements,
    especially with the crypto piece of this, and the President--
    certainly the White House--is inducing banks to get more
    involved with crypto, would not it make sense to increase the
    capital requirements for those firms that are engaging in
    crypto activities?
        Mr. Johnson. Yes, absolutely. Crypto is dangerous and I
    would point out that the leverage is going down in community
    banks and regional banks. It is the ``too big to fail'' banks
    that are leveraging up, and they are the ones who want to pile
    into crypto. It makes no sense. It is super dangerous.
        Mr. Lynch. Thank you, Mr. Chairman. I yield back.
        Chairman Barr. The gentleman yields back.
        The gentleman from Nebraska, the other Mr. Flood, is
    recognized for 5 minutes.
        Mr. Flood of Nebraska. Thank you, Mr. Chairman, and to our
    stenographer, the record should reflect that I do represent the
    people of Nebraska. The other Mike Flood, though, is welcome to
    do all my town halls next year in Lincoln.
        I will afford you that opportunity.
        With that, Mrs. Eversole and Mr. Flood, as chairman of the
    Subcommittee on Housing and Insurance, I am concerned that
    over-calibrated capital requirements are limiting consumers'
    access to affordable and reliable mortgages.
        What reforms should we consider to ensuring that consumers
    continue to access safe, reliable products and services such as
    mortgages?
        Mrs. Eversole. Thanks very much for the question. I think
    it is important to note, as we have reflected on changes since
    2008. In 2008, only 20 percent of mortgages were made outside
    of the banking system, and today, more than 60 percent are made
    outside of the banking system.
        When we think about risk, we know that America has a highly
    regulated, safe, sound, banking system, and when we are pushing
    things outside of the banking system, we should ask the
    question: Is this because of regulatory arbitrage, or is this
    because of a good, sound, competitive marketplace? I think that
    is point one.
        Point two is, it is time to see a Basel III Endgame
    proposal that gets this right because the cost to first-time
    home buyers, to small businesses, we should not be placing
    inappropriate risk weighting on that.
        We look forward to the new proposal.
        Mr. Flood of Nebraska. Mr. Flood.
        Mr. Flood. I would just add a couple comments. I clearly
    agree with Mrs. Eversole about making sure that the risk
    matches the product.
        One thing that I would point out as you consider
    affordability. When we look at Basel, a lot of times, it will
    treat, especially on the commercial side, a privately done,
    affordable deal with no backing, differently than one that is
    supported by the GSEs.
        I get the concept, but if we are going--as you well know,
    if we need all hands in the boat on affordability, that is
    definitely an area that should be looked at, and clearly the
    risk weights for residential mortgages as well.
        Mr. Flood of Nebraska. To Mrs. Eversole's point, like, we
    have this fantastic banking system. It is diverse. It is better
    than anything Europe has. We have Federal banks, State banks,
    community banks, regionals, G-SIBs but what kind of connection
    will they have to Main Street if, like you say, 60 percent of
    this is done--and we are going to be talking about GSE reform
    sometime in this Congress--is it a capital requirements issue?
        Like, Mrs. Tahyar, like, is it a capital requirements
    issue? Can we make changes so that banks are more incentivized
    to get into the mortgage business because I think they are
    going to lose their link to Main Street if they do not have
    that relationship with the consumer?
        Mrs. Tahyar. I strongly agree with that, and I think it is
    more than a capital requirement. I mean, what small banks have
    to do, to do a mortgage loan to somebody in their community who
    they have known for 30 years, since Dodd-Frank, has become
    enormously complex.
        Obviously, there were problems in the financial crisis with
    the liars' loans and not checking income. What we have done
    basically is, we have made it too hard for community banks to
    do what was done for my aunt 30 years ago, which is--she was in
    the State Department. She was stationed in a foreign country.
    She needed to have a home equity loan.
        The guy from the community bank, from the mortgage she had
    already paid off, walked down to the house, walked around the
    house, came back and told her what he could give her.
        I do not think that would happen today.
        Mr. Flood of Nebraska. Right.
        Mr. Flood. Mr. Flood, if I may, I think there are three
    concrete things that should be looked at in the Basel rules:
    One, mortgage servicing rights, servicing----
        Mrs. Tahyar. Exactly.
        Mr. Flood [continuing]. while the chamber has absolutely no
    bias towards who wins in competition between banks and non-
    banks, a level playing field is important.
        I think we have seen the migration of servicing out of
    banks, into non-banks, and I think the reason is entirely for
    capital reasons. So we should think about whether we are
    biasing one form toward another.
        Another would be warehouse lines. You should look at that.
    Finally, of course, the risk weights around mortgages
    themselves.
        Mr. Flood of Nebraska. Very good. I will finish up here
    quickly, but Mr. Olmem and Mrs. Tahyar, do you think that the
    complexity of bank capital requirements can drive further bank
    consolidation?
        I mean, I have banks in my district, in the largest city,
    that are afraid to grow because they are bumping up against a
    new assessment that is going to be painful.
        You do not want that. When that happens, they will be more
    likely to say, ``Oh, we will sell to a big regional.''
        What do you think?
        Mrs. Tahyar. It is the cliff effect of thresholds which
    have created that adverse incentive, and it is certainly
    something that the current supervisors are looking at.
        Mr. Olmem. Yes, I fully agree. I think this is one of the
    key issues at stake with these reforms, is whether or not we
    are going to be able to have regional banks in the United
    States going forward.
        Mr. Flood of Nebraska. We need them and want them, and with
    that, I will yield back.
        Chairman Barr. The gentleman yields.
        The gentleman from North Carolina, Mr. Moore, is now
    recognized.
        Mr. Moore. Thank you, Mr. Chairman.
        During the last administration, banking regulators drifted
    away from their core statutory mission of protecting safety and
    soundness toward subjective judgments and political priorities.
        That shift has created uncertainty and imposed
    disproportionate burdens on the community and mid-sized
    institutions that drive credit formation.
        Now we finally have an opportunity to restore some
    regulatory discipline and return to a framework where
    requirements are truly risk-based and proportional.
        We are working to revive this principle of regulatory
    tailoring because the requirements should match an
    institution's actual risk profile, as several of the witnesses
    have already testified to.
        Mrs. Tahyar, we have emphasized the need to strengthen
    tailoring, especially across categories 2, 3, and 4 banks. What
    specific changes to capital and liquidity requirements should
    be made to ensure mid-size and regional banks are not subjected
    to requirements that simply do not match their actual risk?
        Mrs. Tahyar. So I think you have got, in the tailoring
    statute, you have got $100 billion, but there are other numbers
    that are not in the statute, and I think they should all be
    revisited.
        There is a proposed TLAC proposal that is out there that
    would calibrate a long-term debt requirement for mid-size banks
    really as high as what the G-SIBs have, and I think there
    should be data-driven thinking to bring that calibration of
    TLAC down.
        Then I think there should be, in the same way as the
    community bank leverage ratio a bank that hits $100 billion has
    to start its large bank program when it is at $75-, $80 billion
    and then there is this enormous kind of process, checklist kind
    of thing, and I think that more efficient supervision and more
    transition periods as thresholds are met, as well as the
    indexing of thresholds, would all be wise.
        Mr. Moore. Thank you.
        Charlotte that is in my district, is home to some of the
    most strategically important banks in our country. These
    institutions do not just compete domestically, but also with
    major foreign institutions subject to very different regulatory
    schemes.
        Mrs. Eversole, how do U.S. capital proposals compare
    internationally, and what risk do you see if the United States
    ends up materially higher, with these requirements, than our
    global peers.
        Mrs. Eversole. Thank you very much for the question,
    Congressman.
        Just for the eight largest banks, one of which is
    headquartered in Charlotte we pay twice--we owe twice the
    capital as a consequence of the G-SIB surcharge in using method
    two, versus our international counterparts applying method one.
        It really does not have to be that way. That does not drive
    additional safety and soundness to the system and so it is in
    all of our interests to ensure that we have the safest, most
    liquid, most vibrant capital markets and we serve our customers
    in the very best possible way, but gold-plating simply does not
    make sense, and we should revisit that.
        Mr. Moore. Thank you. We need to get back to a capital
    framework that supports growth and competition, both at home
    and abroad. So I will go to Mr. Olmem.
        Currently only about 40 percent of eligible community banks
    opt in to the community bank leverage ratio. How should the
    CBLR be reformed so that it truly reduces burden, and can be
    used by qualifying banks?
        Mr. Olmem. Thank you for that question. The current
    proposal that has been out to revise the community bank
    leverage ratio, I think is a good step in the right direction.
        It will lower the overall leverage ratio to 8 percent, but
    also it will allow--it will exempt institutions from having to
    still calculate the risk-based as well, which is pretty
    expensive. Oftentimes institutions, if they have to calculate
    it, they will just go ahead and comply because a lot of the
    compliance costs are there. Removing that requirement also
    should help take-up. So I am hopeful that the existing proposal
    should approve the take-up rate.
        Mr. Moore. When the Biden Administration released the
    original Basel III Endgame proposal, they received an
    overwhelming number of critical comments.
        One analysis found that 97 percent of commenters opposed
    the proposal, and more than 85 percent came from outside the
    banking industry, including farmers, small businesses, housing
    advocates, and manufacturers, all citing concerns about higher
    costs for goods, services, and lending, that, of course, we
    have seen impact on the economy.
        So, Mrs. Eversole, what are the impacts of increased bank
    capital requirements beyond just the balance sheets?
        Mrs. Eversole. Right. At the end of the day, there are
    consequences to more capital. It does not come--it does not
    come for free.
        The consequences, as you articulate them from the prior
    proposal on the Basel III Endgame, would have had a
    disproportionate impact on privately held companies, like small
    businesses across America, America's farmers, America's savers,
    America's retirees.
        We need to get the proposal right, and we look forward to
    the proposal that is coming out.
        Mr. Moore. So regulators had determined that capital levels
    were about right in 2020. What changed?
        Chairman Barr. I am going to have to ask you to respond for
    the record because----
        Mr. Moore. I believe we are out of time. Thank you, Mr.
    Chairman. Appreciate it and appreciate the witnesses.
        Chairman Barr. Thank you, Mr. Chairman, and I want to thank
    all of our witnesses for their testimony today, and I request
    unanimous consent to enter into the record an op-ed that I
    authored in support of H.R. 1761, legislation noticed for this
    hearing, that I am leading with Representative Wilson of South
    Carolina, celebrating the 250th anniversary of our Republic,
    cited as the Donald J. Trump $250 Bill Act that directs the
    Secretary of Treasury to print Federal Reserve notes in the
    denomination of $250, featuring a portrait of Donald J. Trump.

        [The information referred to was not submitted prior to
    printing.]

        Without objection, all members will have 5 legislative days
    to submit additional written questions for the witnesses to the
    chair. The questions will be forwarded to the witnesses for
    their response.
        Witnesses, please respond no later than January 15, 2026.

        [The information referred to can be found in the appendix.]

        This hearing is adjourned.

        [Whereupon, at 11:58 a.m., the subcommittee was adjourned.]

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