The Chairman of the House Financial Services Committee, Patrick McHenry (NC-10), alongside all Committee Republicans, has called on Federal Reserve Chairman Jerome Powell to withdraw and re-propose the Basel III Endgame rulemaking in its entirety. The lawmakers argue that significant changes to the original proposal necessitate a complete re-proposal in accordance with the Administrative Procedure Act.
The letter follows Chairman Powell’s testimony before the Committee, where he supported a re-proposal. In their correspondence, the lawmakers emphasized the need for any new changes to undergo a fresh notice of proposed rulemaking.
“We write to underscore the importance of withdrawing the current Basel III Endgame proposal and submitting any new change through a new notice of proposed rulemaking. As we have stated for the past year, the July 27, 2023 proposal lacks the necessary evidence and analysis to completely overturn the current methods used for calculating risk-based capital requirements. If finalized in its current form, the proposal would represent the most significant changes to the bank regulatory framework since the Dodd-Frank Act," they wrote.
They further noted that most comment letters on this proposal from various stakeholders advocate for withdrawal or express significant concerns. "We are concerned by ongoing reports that the Federal Reserve will seek an as-yet undefined ‘partial preproposal,’ and that ‘[t]here will be additional changes that will be made that won’t be re-proposed.’ Let us be clear, the current proposal contains such widespread structural and fatal flaws that a complete withdrawal and re-proposal in its entirety is the only solution," they added.
The lawmakers also highlighted judicial precedents stating that an agency's final rules must logically evolve from initially proposed rules. They argued that fixing flaws in this proposal would require broad changes beyond what can be considered a logical outgrowth, thus necessitating a re-proposal.
“We appreciate the Federal Reserve Board’s efforts to meaningfully engage with public input in its rulemaking process. We strongly encourage the Board to avoid potential litigation and reputational risks by withdrawing and re-proposing in entirety,” they concluded.