[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                       THE TANGLED WEB OF GLOBAL
                       GOVERNANCE: HOW THE BIDEN
                        ADMINISTRATION IS CEDING
                        AUTHORITY OVER AMERICAN
                          FINANCIAL REGULATION

=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
                          AND MONETARY POLICY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            NOVEMBER 7, 2023

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-54
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


                                __________

                   U.S. GOVERNMENT PUBLISHING OFFICE                    
55-023 PDF                  WASHINGTON : 2024                    
          
-----------------------------------------------------------------------------------     

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                     Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas, Vice          EMANUEL CLEAVER, Missouri
    Chairman                         JIM A. HIMES, Connecticut
TOM EMMER, Minnesota                 BILL FOSTER, Illinois
BARRY LOUDERMILK, Georgia            JOYCE BEATTY, Ohio
ALEXANDER X. MOONEY, West Virginia   JUAN VARGAS, California
WARREN DAVIDSON, Ohio                JOSH GOTTHEIMER, New Jersey
JOHN ROSE, Tennessee                 VICENTE GONZALEZ, Texas
BRYAN STEIL, Wisconsin               SEAN CASTEN, Illinois
WILLIAM TIMMONS, South Carolina      AYANNA PRESSLEY, Massachusetts
RALPH NORMAN, South Carolina         STEVEN HORSFORD, Nevada
DAN MEUSER, Pennsylvania             RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York
ANDREW GARBARINO, New York           SYLVIA GARCIA, Texas
YOUNG KIM, California                NIKEMA WILLIAMS, Georgia
BYRON DONALDS, Florida               WILEY NICKEL, North Carolina
MIKE FLOOD, Nebraska                 BRITTANY PETTERSEN, Colorado
MIKE LAWLER, New York
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director
       Subcommittee on Financial Institutions and Monetary Policy

                     ANDY BARR, Kentucky, Chairman

BILL POSEY, Florida                  BILL FOSTER, Illinois, Ranking 
BLAINE LUETKEMEYER, Missouri             Member
ROGER WILLIAMS, Texas                NYDIA M. VELAZQUEZ, New York
BARRY LOUDERMILK, Georgia, Vice      BRAD SHERMAN, California
    Chairman                         GREGORY W. MEEKS, New York
JOHN ROSE, Tennessee                 DAVID SCOTT, Georgia
WILLIAM TIMMONS, South Carolina      AL GREEN, Texas
RALPH NORMAN, South Carolina         JOYCE BEATTY, Ohio
SCOTT FITZGERALD, Wisconsin          JUAN VARGAS, California
YOUNG KIM, California                SEAN CASTEN, Illinois
BYRON DONALDS, Florida               AYANNA PRESSLEY, Massachusetts
MONICA DE LA CRUZ, Texas
ANDY OGLES, Tennessee
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    November 7, 2023.............................................     1
Appendix:
    November 7, 2023.............................................    45

                               WITNESSES
                       Tuesday, November 7, 2023

Bashur, Bryan, Director, Financial Policy, Americans for Tax 
  Reform (ATR)...................................................     5
Hoenig, Thomas, Distinguished Senior Fellow, Mercatus Center, 
  George Mason University........................................     6
Marcellin, Renita, Advocacy & Legislative Director, Americans for 
  Financial Reform (AFR).........................................    10
Skinner, Christina Parajon, Assistant Professor, Legal Studies 
  and Business Ethics, the Wharton School, University of 
  Pennsylvania...................................................     8

                                APPENDIX

Prepared statements:
    Bashur, Bryan................................................    46
    Hoenig, Thomas...............................................    59
    Marcellin, Renita............................................    62
    Skinner, Christina Parajon...................................    73

              Additional Material Submitted for the Record

Hoenig, Thomas:
    Written responses to questions for the record from 
      Representative Barr........................................    85
    Written responses to questions for the record from 
      Representative Waters......................................    86
Marcellin, Renita:
    Written responses to questions for the record from 
      Representative Barr........................................    87
    Written responses to questions for the record from 
      Representative Waters......................................    89
Skinner, Christina Parajon:
    Written responses to questions for the record from 
      Representative Barr........................................    91
    Written responses to questions for the record from 
      Representative Waters......................................    92

 
                       THE TANGLED WEB OF GLOBAL
                       GOVERNANCE: HOW THE BIDEN
                        ADMINISTRATION IS CEDING
                        AUTHORITY OVER AMERICAN
                          FINANCIAL REGULATION

                              ----------                              


                       Tuesday, November 7, 2023

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Monetary Policy,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
room 2128, Rayburn House Office Building, Hon. Andy Barr 
[chairman of the subcommittee] presiding.
    Members present: Representatives Barr, Posey, Luetkemeyer, 
Williams of Texas, Rose, Timmons, Norman, Fitzgerald, Kim, De 
La Cruz, Ogles; Foster, Velazquez, Sherman, Meeks, Scott, 
Green, Beatty, Vargas, and Casten.
    Ex officio present: Representative Waters.
    Chairman Barr. The Subcommittee on Financial Institutions 
and Monetary Policy will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time.
    Today's hearing is entitled, ``The Tangled Web of Global 
Governance: How the Biden Administration is Ceding Authority 
Over American Financial Regulation.''
    I now recognize myself for 5 minutes to give an opening 
statement.
    Today's hearing considers the recent onslaught of banking 
regulatory proposals, including the Basel III Endgame proposal, 
from Democrat-appointed officials to massively raise capital 
requirements on an already well-capitalized system. That 
proposal stems from recommendations made in opaque meetings of 
the global governance body called the Basel Committee on 
Banking Supervision.
    To increase transparency within the Basel Committee, Full 
Committee Chairman McHenry and I sent a letter to the 
Government Accountability Office (GAO) requesting more 
information and a report on the Federal banking agencies' role 
in the development of international standards for the Basel III 
Endgame. That report will be just the start in exposing 
international governance groups' activist pursuits across the 
global economic system and the control over U.S. regulatory 
frameworks by unelected bureaucrats.
    The Basel Committee is tied to the Bank for International 
Settlements (BIS), and is part of an ever-growing, tangled web 
of global governance bodies. Along with the Basel Committee and 
BIS, the Financial Stability Board (FSB), and recently, the 
Network for Greening the Financial System (NGFS) have more 
influence on and information about goals, intentions, and plans 
of U.S. regulatory agencies than does even the Congress.
    The tangled web of global governance bodies works behind 
closed doors in tight cohesion with U.S. regulatory officials 
and staff at the Federal banking agencies. Staff from the 
Federal Reserve, the FDIC, the OCC, and Treasury work with 
those bodies to develop regulatory standards, write policy 
papers, and promote the goals of those global governance 
bodies--hardly consistent with American constitutional 
governance. Some Federal banking officials sometimes even 
receive compensation from global governance bodies for their 
work in those bodies.
    U.S. Federal banking agencies are held to commitments that 
those bodies require of members in their self-constructed and 
sometimes dynamically-changing mandates. Congress and the 
American people do not know what goes on in the global 
governance bodies, and Federal banking agencies provide little 
information.
    On July 18th, this subcommittee had officials from the 
Federal Reserve, the Federal Deposit Insurance Corporation 
(FDIC), the Office of the Comptroller of the Currency (OCC), 
and the National Credit Union Administration (NCUA) testify 
about purported climate-related financial risks and what those 
agencies were doing with the opaque NGFS, a global governance 
body dedicated to climate activism, and with the Biden 
Administration. Those officials showed shockingly little 
knowledge about what their agencies were doing within the NGFS.
    Yet the NGFS, the BIS, the FSB, and other strands of the 
tangled web of international bodies are playing growing roles 
in climate policymaking at the Federal banking agencies. For 
example, the Federal Reserve's recently-proposed Principles for 
Climate-Related Financial Risk Management for Large Financial 
Institutions align remarkably closely to those being pushed by 
the global governance bodies, as well as by the Biden 
Administration. The recent climate scenario analysis experiment 
of the Federal Reserve's Vice Chair for Supervision directly 
responds to policy desires of global governance bodies like the 
NGFS, the BIS, and the FSB, along with an Executive Order and 
lobbying by the Financial Stability Oversight Council (FSOC).
    The NGFS, as the increasingly-vocal global governance body 
for climate, concerningly allows for outside activist funding 
of its so-called workstreams, including development of climate 
models and data, with funding channels tied to political and 
activist interests.
    As Federal officials overseeing supervision and regulation 
of financial institutions adopt politicized proposals to 
implement bipartisan U.S. laws governing banking and finance, 
they threaten the independence of their agencies.
    However, as was the case with Operation Choke Point under 
the Obama Administration, Democrat-appointed officials at 
Federal banking agencies once again are pushing partisan 
proposals for supervision and regulation. In an attempt to 
appear independent, part of the regulators' push is occurring 
through the use of these global governance bodies. To garner 
support for partisan and activist positions, Democrat-appointed 
Federal regulatory officials are putting forward proposals 
under the guise that they are necessary to align with 
agreements or commitments made in those bodies.
    Meanwhile, Congress and the American people are kept in the 
dark about what goes on at the global governance bodies. It 
will be of interest today to learn from our witnesses what they 
do or do not know about those bodies and what goes on behind 
closed doors. It will also be of interest to learn the views of 
all of our witnesses on the recent onslaught of misguided, 
understudied Federal banking regulations, including the Basel 
III Endgame.
    This hearing is about whether it is appropriate or even 
constitutional for our Federal banking regulators to cede U.S. 
sovereignty, and import international standards into our 
regulatory system.
    With that, the Chair now recognizes the ranking member of 
the subcommittee, the gentleman from Illinois, Dr. Foster, for 
4 minutes for an opening statement.
    Mr. Foster. Thank you, Chairman Barr, for holding this 
hearing.
    And thank you to our witnesses for being here today.
    Today, we are going to be discussing the recommendations of 
various international and intergovernmental organizations and 
how they may or may not influence the work of U.S. banking 
regulators.
    Specifically, this hearing will focus on recent 
developments in U.S. banking regulation, with an emphasis on 
prudential regulators' Basel III Endgame capital reforms that 
were developed largely on the recommendations of the Basel 
Committee on Banking Supervision.
    We will also examine proposed principles for the management 
of climate-related financial risks and other risks and how they 
may relate to recommendations from the Network for Greening the 
Financial System, FSOC, and an Executive Order issued by 
President Biden.
    The theme of this hearing seems to be the argument that 
U.S. banking regulators have unilaterally ceded their 
regulatory authority to the international community via their 
engagement with these intergovernmental bodies and that this 
engagement is harmful to U.S. interests and, more generally, 
that the U.S. has nothing to learn from the experience of 
financial regulators around the world.
    It seems to be driven by the belief that the Fed, the FDIC, 
the OCC, and other U.S. regulators passively attend meetings 
with their foreign counterparts in these bodies and blindly 
accept their recommendations without a second thought. This 
perspective is highly questionable, and, in particular, it 
ignores the value of the U.S. voice in these discussions and 
the statutory requirements that guide the implementation of 
policy in the United States.
    First, we cannot ignore the fact that participation in 
international organizations like the Basel Committee allows the 
United States to provide global leadership in international 
discussions of financial regulation. As was noted in today's 
testimony, former President Trump's Treasury Secretary, Steven 
Mnuchin, noted that the Basel III agreements are largely about 
bringing European and Asian capital requirements in line with 
the U.S., and not the reverse.
    The Bank of International Settlements estimates that there 
are nearly $38 trillion in cross-border claims with its member 
banks alone. And given the increasingly-global nature of the 
financial system, distress in one jurisdiction can easily spill 
over to other parts of the globe, so it is in our interest to 
have the highest-quality regulatory standards adopted 
worldwide. We saw clear examples of cross-border contagion 
during the 2008 financial crisis, and more recently during the 
COVID-19 pandemic, when global asset prices fluctuated wildly 
and financial firms were met with a range of responses from 
global regulators.
    Just as their foreign counterparts advocate for the 
interests of their respective jurisdictions in international 
discussions, U.S. regulators do the same by maintaining a seat 
at the table in these discussions.
    And second, banking regulators have no statutory obligation 
to adopt the recommendations of these international bodies, nor 
are they free to act on them as they please. As has been done 
with the Basel III Endgame proposal, U.S. regulators must 
follow the Administrative Procedure Act (APA) and other 
applicable administrative laws that ensure any regulatory 
proposals are adopted following the procedures laid out by 
Congress in a way that integrates shareholder feedback.
    That said, it is the role of Congress to oversee the 
activities of our financial regulators and to engage on the 
proposals they put forward. We do so by commenting on the 
proposals, engaging directly with regulators, and by holding 
hearings like this one today to have a chance to hear from 
stakeholders and experts.
    Our policies should support the competitiveness of U.S. 
banks of all sizes and support economic growth here at home, 
while also being responsible to known and emerging risks 
throughout the globe. Rising geopolitical tensions present 
threats to our trading partners and supply chains, and climate 
change poses unique risks to many communities and industrial 
sectors. As we saw with Silicon Valley Bank earlier this year, 
social media-driven bank runs and so on require a rational 
response across all jurisdictions.
    I look forward to hearing the perspectives of our witnesses 
and those of my colleagues on this important topic.
    Thank you, and I yield back.
    Chairman Barr. Thank you, Ranking Member Foster.
    And I see that the ranking member of the full Financial 
Services Committee is not here, so we will move on to testimony 
from our witnesses.
    Today, we welcome the testimony of: Mr. Bryan Bashur, the 
director of financial policy at Americans for Tax Reform and, I 
see also, a fellow Wahoo; Mr. Thomas Hoenig, a distinguished 
senior fellow at the Mercatus Center at George Mason 
University; Professor Christina Parajon Skinner, an assistant 
professor of legal studies and business ethics at the Wharton 
School at the University of Pennsylvania; and Ms. Renita 
Marcellin, the advocacy and legislative director of Americans 
for Financial Reform.
    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. And without objection, 
each of your written statements will be made a part of the 
record.
    Mr. Bashur, you are now recognized for 5 minutes for your 
oral remarks.

    STATEMENT OF BRYAN BASHUR, DIRECTOR, FINANCIAL POLICY, 
                 AMERICANS FOR TAX REFORM (ATR)

    Mr. Bashur. Thank you, Chairman Barr, Ranking Member 
Foster, and members of the subcommittee. Thank you for the 
invitation to testify today.
    My name is Bryan Bashur, and I am the director of financial 
policy at Americans for Tax Reform (ATR). ATR is a nonprofit 
501(c)(4) taxpayer advocacy organization that opposes all tax 
increases and supports limited government, free-market 
policies. In support of these goals, ATR opposes heavy 
regulation and taxation of financial services. ATR was founded 
in 1985 at the request of President Ronald Reagan.
    I am here today to talk about the Federal Government's 
excessive regulation of the U.S. financial sector. In 
particular, I am here to discuss how international 
organizations, such as the Basel Committee on Banking 
Supervision, the Financial Stability Board, and the Network of 
Central Banks and Supervisors for Greening the Financial 
System, have influenced and are currently influencing America's 
Federal financial regulators, many of which are members of 
these international organizations.
    What is most worrisome is that the U.S. regulators such as 
the Federal Reserve (Fed), the Federal Deposit Insurance 
Corporation (FDIC), the Office of the Comptroller of the 
Currency (OCC), and the Securities and Exchange Commission 
(SEC), are circumventing Congress and using these international 
consortiums as a baseline for determining how to regulate 
American companies.
    Overall, my concern is that the American public does not 
have a clear understanding of how decisions are made at these 
organizations and how regulators use this information to 
regulate and supervise America's financial sector.
    Over the course of our nation's history, capital 
requirements have become increasingly more complex and 
burdensome. Regulations on top of more regulations has become 
the mainstay. But have regulators adequately accounted for the 
costs of the new regulations? Do the marginal benefits of 
increasing capital requirements outweigh the marginal costs? In 
my opinion, the answer is, no. But the bigger question is, who 
gets to make these decisions?
    For decades, central bankers from around the world have 
convened in Basel, Switzerland, to construct frameworks for 
regulating banks. You might ask, where in Federal statute does 
it say that U.S. regulators should convene with their 
international counterparts to determine rules for American 
financial institutions? The answer is that Federal statute does 
not authorize regulators to convene with international 
organizations, and then pursue the formal regulatory process 
under the Administrative Procedure Act.
    Ultimately, it is up to Congress to hold regulators 
accountable. We need transparency to understand how regulators 
are making decisions and to comport with the constitutional 
separation of powers.
    The capital standards adopted by the Basel Committee have 
wrongly taken precedence over the authority invested in 
Congress to legislate and determine the appropriate capital 
requirements for American banks.
    The Basel Committee, a regulatory consortium composed of 
global financial regulators, has influenced U.S. bank capital 
requirements even though it possesses no supranational 
authority or legal force. The Basel Committee's charter even 
admits that it does not possess any formal supranational 
authority.
    The U.S. Government is implementing regulations for U.S. 
banks that are based on a framework designed by a coalition of 
unelected bureaucrats from countries around the world. It is 
concerning that U.S. regulators are taking international 
guidelines and imposing them on banks, and ultimately, the 
American public.
    The Executive Branch hijacked the rulemaking process by 
circumventing Congress. The Executive Branch enforces the law; 
it does not create it.
    In light of West Virginia v. EPA, regulators must tread 
lightly or they will wind up in a situation where they are 
facing costly litigation. For rules as economically significant 
as the recent capital requirement regulations, there needs to 
be clear congressional authorization. And so far, Congress has 
not provided that clear authority.
    What is clear is that the Executive Branch has assumed so 
much power over the years that in certain cases, such as with 
climate risk and capital requirements, it has decided to assume 
the powers of the Legislative Branch in determining how to best 
regulate private American enterprises.
    The Fed is concerned about a race to the bottom. I am here 
to say that we should be concerned about a race to the top. 
Foreign central banks should not be the arbiters of the U.S. 
banking sector.
    This committee has worked diligently to propose legislation 
that is a big step in the right direction. Bills such as Vice 
Chairman Barry Loudermilk's American Financial Institution 
Regulatory Sovereignty and Transparency Act would hold 
regulators more accountable and prevent them from unilaterally 
implementing rules originally formulated by foreign entities 
with no supranational authority in the United States.
    Thank you again for inviting me to this hearing. I look 
forward to answering your questions.
    [The prepared statement of Mr. Bashur can be found on page 
46 of the appendix.]
    Chairman Barr. Thank you.
    Mr. Hoenig, you are now recognized for 5 minutes.

   STATEMENT OF THOMAS HOENIG, DISTINGUISHED SENIOR FELLOW, 
            MERCATUS CENTER, GEORGE MASON UNIVERSITY

    Mr. Hoenig. Thank you, Chairman Barr, and members of the 
subcommittee, for this opportunity to share my views regarding 
risk-weighted capital standards and their role in ensuring bank 
resilience through the business cycle.
    In my comments, I will briefly discuss what capital is, 
just to level-set its purpose, and compare the two principal 
methods, the leverage ratio versus the risk-weighted capital 
ratio, used to judge the relative capital strength of a bank. 
And I will argue that, of the two methods, the leverage ratio 
is clearer and a better measure.
    Equity capital funded by investors who seek a return on 
their money and accept risk of loss is the most stable funding 
source for the banking industry. Equity cannot run in a crisis 
and, unlike debt, is not in default if dividends cease. And 
equity absorbs losses before depositors and other creditors.
    Historically, the leverage ratio, equity to assets, has 
been the market's first means to judge a bank's balance sheet. 
It is a simple, understandable, and efficient way to measure an 
investor's stake in a bank and its ability to absorb losses.
    However, starting in the 1980s, with the goal of raising 
capital levels globally, bank supervisors from the major 
industrial countries, led by the U.S., agreed to develop a more 
risk-sensitive international capital framework. Rather than 
relying on the leverage ratio, they would assign risk weights 
to assets, adjusting the size of the balance sheet around their 
estimate and their judgment of relative risk. A loan, for 
example, would receive a weight of one, while government debt 
would receive a weight much less than one. A risk-rated capital 
ratio is then calculated as equity to adjusted assets based on 
risk.
    I have long criticized the use of Basel standards. From the 
start, the risk-weighted capital framework was politicized and 
gamed. To get acceptance among nations, for example, risk 
weights were adjusted for sovereign debt, mortgages, and 
securitized assets. Models were and are arcane, sometimes 
manipulated, and often implemented differently among countries.
    In contrast to the leverage ratio, the risk-weighted 
capital ratio is opaque, difficult to understand, and costly to 
construct. For example, the recently-proposed Basel III Endgame 
that you mentioned required over 1,000 pages to explain, adding 
to the thousands of Basel instructions already in place. Its 
purpose is to adjust the risk-weighted standards to better 
capture two sources of risk: market risk; and operational risk. 
I would wager that few bank directors would understand its 
content.
    An inherent problem with the risk-weighted capital standard 
is that the weights reflect past events, are static, and too 
often are adjusted by supervisory judgment, which introduces 
political and special interests into the process. It misdirects 
capital and may incorrectly favor one group of assets over 
another.
    For example, in the past, low weights were assigned to 
high-risk sovereign debt, collateralized debt obligations, and 
other derivatives, encouraging growth in these assets and 
discouraging loans on assets assigned higher weights, such as 
commercial and industrial loans.
    The risk-weighted capital measure can also misinform the 
user. For example, as of December 2022, a year ago, the largest 
U.S. globally systemic bank showed an average risk-weighted 
capital ratio of 14 percent, suggesting a highly-capitalized 
industry. However, judging these banks through the prism of the 
leverage ratio of 7 percent suggests more vulnerability to 
shocks.
    In truth, losses can spring from all asset classes. The 
losses at Silicon Valley Bank that you mentioned came from its 
government-guaranteed bonds, which had low weights, thus 
requiring relatively little funding, using ownership capital.
    This is an example of why, when industry experiences 
problems, investors, the public, and regulators turn to the 
leverage ratio to judge a bank's resilience. The leverage ratio 
will not end failures, however, it will enhance market 
discipline, as it reveals ownership stake in the success of a 
bank and how much loss a bank can absorb and remain solvent.
    Finally, research confirms these kinds of conclusions. So, 
while we are trying to get the rest of the world to raise 
capital, we should focus on the U.S. and what makes our banks 
stronger. Because, in the long run, the strength of your 
industry will decide who wins in the international competitive 
world.
    Thank you, Mr. Chairman, for the time, and I look forward 
to your questions.
    [The prepared statement of Mr. Hoenig can be found on page 
59 of the appendix.]
    Chairman Barr. Thank you very much.
    Professor Skinner, you are now recognized for 5 minutes to 
give your oral remarks.

 STATEMENT OF CHRISTINA PARAJON SKINNER, ASSISTANT PROFESSOR, 
    LEGAL STUDIES AND BUSINESS ETHICS, THE WHARTON SCHOOL, 
                   UNIVERSITY OF PENNSYLVANIA

    Ms. Skinner. Chairman Barr, Ranking Member Foster, and 
members of the subcommittee, thank you for inviting me here to 
testify about the regime of international financial regulation.
    U.S. bank regulators have proposed, among others, a rule to 
finalize the third Basel Accord in a way that will 
significantly increase the amount of capital that banks 
require, weaken their business model, and drive unknowable 
shifts in market structure. There is reason to be concerned 
with the bluntness of this so-called Basel Endgame rule, its 
costs, and unintended consequences.
    While the contours of the rule are still very much in flux, 
it is a good time for Congress to exercise oversight of this 
nexus between these international financial regulatory bodies--
Basel, the NGFS, the FSB--and the way that rule- and guidance-
making is done in the United States.
    So, with that big picture in mind, I will focus my remarks 
today on how international norms that have developed among 
clubs of central bankers and bank supervisors can provide an 
opportunity for these U.S. bank regulators to end-run Congress.
    And, specifically, I worry that today, participation in 
Basel, the FSB, and the NGFS may create space for regulators to 
bring home their own vision of the U.S. banking market 
structure.
    Banks that are made to heel to State control would allow 
regulators to accomplish a myriad of things that they can't do 
within the confines of the mandates that Congress has set for 
them, for example, transform banks into quasi-utilities or 
attempt to tackle climate change.
    At the outset, I want to make it clear that the post-World 
War II commitment and interest in international economic 
coordination has had tremendous and lasting benefits globally 
and for the United States. But one can believe in the power and 
merit of this manner of cross-border coordination, while also 
maintaining fidelity to the U.S. rule of law, and today I would 
like to explore that balance.
    Congress' challenge with these international financial 
regulatory groups is that they aren't based in treaty or any 
other kind of formal law, and for that reason, it is easy for 
them to turn to mission creep--which is to say that they have 
the ability to continuously expand their mandates and 
functions, which, in turn, is driving a similar expansion in 
U.S. law.
    These organizations were designed to be groups for 
brainstorming, for the cross-pollination of ideas. Basel is 
often referred to as a standard-setter. But for most of Basel's 
history, its members--experts about banks--would discuss and 
agree to basic minimum standards for the relatively anodyne 
subjects of capital and supervision.
    Since 2010, however, Basel, along with these newcomers, the 
NGFS and the FSB, have been pushing into new arenas, many of 
which require subjective value judgments, which are therefore 
political judgment calls.
    In particular, the amorphous mission to address financial 
stability risk has expanded these organizations' portfolios 
tremendously. The result is that, today, the workstreams of 
these groups may well provide a backdoor to or a pretext for 
accomplishing objectives that are on the Executive Branch's 
agenda but have no statutory basis.
    Regulating to mitigate climate change is just one example. 
And consider three ways that preferences for supervising 
climate risk as articulated at Basel and the NGFS and the FSB 
may way well find their way into U.S. law without congressional 
approval.
    First, the Basel Endgame rule purports to reduce variation 
between banks' calculation of their capital charges. But what 
is the endgame there? European and U.K. banks have expressed a 
desire to eventually increase risk weights for brown assets and 
reduce them for green assets. So, if the U.S. subscribes to the 
principle of no variation, will we ultimately have to adopt 
that standard too?
    Second, the Endgame proposal requires standardization in 
charges for operational risk, a risk which can very easily be 
expanded to include climate change regulation. Operational risk 
charges are meant to cover all manner of litigation and legal 
costs; losses from purported, real, or predicted physical and 
natural disasters; and, ostensibly, from policy transition 
risk.
    Finally, although the Fed's recently-launched supervisory 
stress testing for climate risk has been piloted as voluntary, 
the expression, ``voluntold,'' comes to mind, and it is well 
known that the moral suasion of the supervisor can be a very 
compelling stick.
    Now, maybe everyone is acting in good faith--and, 
certainly, many are--but given the lack of a statutory basis 
for implementing Basel's Endgame--Dodd-Frank is now 13-years-
old--this recently-proposed rule begs an important question. 
Either these agencies will follow Basel blindly off a cliff, or 
they will find the opacity a convenient opportunity to deliver 
rules that aren't a good fit for the U.S. economy and banking 
system but do promote some political or special interest.
    Ultimately, we need to take a step back and see the forest 
through the trees. There are obvious reasons why European 
regulators need to coordinate in these forums. They are small 
jurisdictions, and they are crucially interdependent. The 
United States has the strongest banking system in the world, 
and while coordination is important, the U.S. is usually a 
standard-maker, not a standard-taker.
    And even when the U.S. does shape standards in these 
forums, regulators should not be able to hide behind the opaque 
Basel or FSB processes to justify what they have done and why.
    [The prepared statement of Professor Skinner can be found 
on page 73 of the appendix.]
    Chairman Barr. Thank you, Professor Skinner.
    And now, Ms. Marcellin, you are recognized for 5 minutes.

STATEMENT OF RENITA MARCELLIN, ADVOCACY & LEGISLATIVE DIRECTOR, 
              AMERICANS FOR FINANCIAL REFORM (AFR)

    Ms. Marcellin. Thank you, Chairman Barr, Ranking Members 
Waters and Foster, and members of the subcommittee for the 
chance to testify today.
    Americans for Financial Reform (AFR) is an advocacy 
organization born out of the 2008 global financial crisis that 
continues to push for a more stable and equitable banking 
system.
    AFR strongly supports the Basel Endgame capital proposals 
put forward by the banking regulators, and their work to 
address climate-related financial risk, especially as the world 
grapples with the dire effects of climate change. These efforts 
will lead to a more-resilient financial system, a stronger 
economy, and put us on the path to effectively addressing the 
threats posed by a warming planet.
    Banks without the necessary capital to weather economic 
storms put their depositors, customers, and communities in 
jeopardy. Contrary to popular belief, capital is not money 
locked away in a vault, unable to be used. Capital equals 
equity, which is the difference between a bank's total assets 
and liabilities.
    For non-financial companies, market forces usually 
determine how companies use their equity, whether it is 
reinvested in the company or paid as dividends to shareholders. 
However, given the unique role banks play in our economy, banks 
have special requirements on how much capital they need to 
retain.
    Banks are publicly chartered entities that help supply the 
money and credit that the economy needs to thrive. Their 
failure negatively affects more than just their shareholders. 
Requiring higher capital levels helps ensure banks retain skin 
in the game.
    As many studies have noted, well-capitalized banks have 
lower funding costs compared to their peers, because they have 
a lower likelihood of default. Countries that had better-
capitalized banking systems in 2006 experienced higher lending 
growth during and after a financial crisis. This all undercuts 
claims that higher capital requirements will hurt access to 
credit.
    Not only does the current proposal lower the amount of 
capital required to fund a bank's overall lending activity, but 
current or even proposed capital levels fall below what most 
experts suggest is optimal. Data from the Kansas City Fed, as 
emphasized in my written testimony, makes it clear that banks 
are well below capital levels that would begin to restrict the 
economy.
    The Basel proposal would increase capital requirements by 
only 6 percent, on average, for banks with more than $100 
billion in assets, and 19 percent for U.S. global systemically 
important banks (G-SIBS), so less than 50 banks would be 
affected by this proposal. The frantic arguments against the 
proposals are an attempt to keep the status quo for the less 
than 1 percent of U.S. banks that enjoy outsized political and 
economic power here and abroad.
    The United States is seen as the leader in the financial 
industry, and, as former Treasury Secretary Steven Mnuchin, and 
Ranking Member Foster noted, much of Basel III was about 
bringing the European capital standards closer to those of the 
United States. The interests of American financial institutions 
can only be advanced if U.S. authorities participate in global 
standard-setting bodies.
    Additionally, international bodies have no legal authority 
here, and U.S. regulators still need to follow the standard 
notice-and-comment period before any Basel Accord becomes 
binding.
    International standards also help prevent a race to the 
bottom, usually sold as, ``maintaining global 
competitiveness.'' But how we measure competitiveness should be 
more than comparing our banks' profitability to their global 
counterparts', and our quest to become competitive should not 
lead our banks to become a source of weakness in the global 
system, as they were pre-2008.
    Our financial services industry is less competitive if we 
sacrifice proper safety and soundness measures, because doing 
so eventually leads to financial crises. American banks fared 
much better than European banks after the financial crisis 
partially because U.S. regulators took decisive action 
regarding capital requirements in 2009.
    The U.S. should also be a leader in addressing the unique 
risk that climate change poses to our financial system. While 
the Fed has started a pilot program to analyze climate-related 
risk for the six largest banks in the U.S., many other 
countries are far ahead of us. For example, the U.K. and the EU 
have published climate-related expectations for their banks, 
and have included climate change and stress testing for 
insurance companies respectively. Thus, it is hard to see how 
the U.S. is ceding its authority to global regulators.
    Our policymakers need to create a framework for 
stakeholders to consider the financial risk of climate change. 
They should place the interests of taxpayers, workers, and the 
broader economy above those of a few shareholders.
    The Basel proposal and the broader work of the 
Administration to address climate-related financial risk forces 
banks to prioritize their long-term growth and value in the 
real economy over riskier strategies for short-term financial 
gain.
    We look forward to working with the members of this 
committee on these issues.
    Thank you.
    [The prepared statement of Ms. Marcellin can be found on 
page 62 of the appendix.]
    Chairman Barr. Thank you for your testimony.
    I will now recognize the ranking member of the full 
Financial Services Committee, Ms. Waters, for a 1-minute 
opening statement.
    Ms. Waters. Thank you very much, Mr. Chairman.
    We are 10 days away from a costly government shutdown, and 
instead of working with Democrats to prevent that, Republicans 
are advancing funding bills that are dead on arrival because 
they slash critical funding and undermine agencies like the 
Consumer Financial Protection Bureau (CFPB).
    And despite the bank failures earlier this year, 
Republicans have the audacity to hold this hearing to attack 
regulators for coordinating with their foreign counterparts to 
better promote bank safety and soundness.
    Given the global structure and nature of our financial 
system, it is important that our regulators engage through 
international organizations like the Basel Committee to ensure 
that the U.S. is providing leadership on strong safeguards to 
avoid a global race to the bottom, and so that we learn from 
others how to address systemic risks like climate change.
    Thank you, and I yield back.
    Chairman Barr. The gentlelady yields back.
    We will now turn to Member questions, and the Chair now 
recognizes himself for 5 minutes.
    Mr. Hoenig, your experience at the FDIC and in the Federal 
Reserve System includes work on developing and implementing 
U.S. bank regulatory policies. You have also worked directly in 
supervising and regulating financial institutions.
    This committee held a hearing in July on purported climate-
related financial risks and activities of bank regulators in 
the NGFS. In that hearing, we questioned high-level staff from 
the Fed, the FDIC, and the OCC, and it appeared that, even at 
the highest levels, exactly what goes on at the NGFS is not 
fully known by our own regulators. And that may also hold true 
for other global governance bodies, such as the Basel 
Committee.
    In your experience at the Fed and the FDIC, did you have 
full information about deliberations and negotiations at places 
like Basel? And were you involved, as an official, in signing 
any of the agreements or accords we hear about? I know the NGFS 
didn't exist in your day at those agencies, but do you think 
there is adequate transparency today?
    Mr. Hoenig. The way those negotiations go, the staff are 
sent to Basel to discuss these issues with the others around 
Europe and worldwide. Those discussions go on in great detail 
for extended periods. When they come back, the individuals may 
brief the chairman or the board itself. That is at the 
discretion of the board, and often that is not done until well 
into the finalization of the discussions.
    Then, the board will be briefed. And if they are being 
asked to adopt this rule, they will be briefed on the rule at 
that point. And it is an up-or-down vote at that point. If you 
have objections, you would vote against it. But you really have 
no input until the very end of the process. The chairman may 
have more input than the other members of the board, but it is 
pretty much staff-level until you get towards the end.
    Chairman Barr. And, by the way, I do appreciate your 
testimony about the complexity of risk-weighting and the 
tendency that it could lead to the politicization of bank 
capital requirements versus the leverage ratio you talked 
about.
    Professor Skinner, can you also speak to the opacity of the 
decision-making at these international bodies?
    Ms. Skinner. Yes. As an academic, it is very difficult to 
know what the negotiating aims of any given participant will be 
and how decisions are taken up, how they are made, or which 
issues are pursued. What we do know, as scholars who study 
these institutions, is that the opacity, the lack of 
transparency, is a deliberate design choice. When these 
institutions were formed, the tradeoff was made to decrease or 
to give up on accountability and transparency in favor of 
agility, flexibility, and this clubbiness that was thought to 
inspire trust among its members.
    Chairman Barr. And please amplify your testimony about how 
regulators' participation with these international bodies 
could, in many ways, circumvent constraints that Congress would 
impose on those regulatory agencies and import foreign 
standards, especially in the climate area--foreign standards, 
where Congress has not authorized those foreign standards.
    Ms. Skinner. Right. As has been noted before, technically, 
before any rule becomes U.S. law, it has to go through the APA 
process. But in some ways, that is an overly-formalistic 
explanation of what goes on, because, in the case of climate, 
for example, if standards are agreed to at Basel, or capital 
risk weights, for example, oftentimes, they will create what is 
perceived to be or what is actually a very sticky default. So, 
those standards are brought home and then anchor our 
conversations around what the Fed or the OCC or the FDIC should 
do.
    In the specific case of climate, many jurisdictions around 
the world have much more open-ended mandates to address climate 
change than the Fed or the OCC. So, in an effort to be 
compatible with what their counterparts abroad are doing, the 
Fed or the OCC may, in turn, sort of stretch the limits of 
their mandate to supervise for safety and soundness and for 
financial stability risk to try and address things that 
Congress might not otherwise do.
    Chairman Barr. Mr. Bashur, should Congress or global 
governance bodies outside of Congress' purview play the 
predominant role in making and overseeing Federal banking law?
    Mr. Bashur. No, they should not. There is not enough 
transparency with these international organizations. They are 
clearly ignoring Congress. They are not considering if Congress 
has condoned their actions. They basically believe that they 
have full discretion to do whatever they want. And, they do 
not. According to case law, they do not have unbridled 
authority. And this is a great opportunity, I think, for 
Congress to rein them in.
    Chairman Barr. My time has expired.
    The ranking member of the Full Committee, the gentlewoman 
from California, Ms. Waters, is recognized for 5 minutes.
    Ms. Waters. Thank you very much.
    I would like to address this question to Ms. Marcellin.
    Earlier this year, we saw how quickly the banking system 
got into serious trouble when Silicon Valley Bank collapsed 
after experiencing the fastest bank run in United States 
history. We and the banking regulators worked through the 
weekend. Thankfully, Treasury Secretary Yellen, along with the 
FDIC and the Fed, were able to take several measures on their 
own to stabilize the situation.
    As Congress examined what went wrong, committee witnesses, 
including Fed officials, highlighted that Silicon Valley Bank 
(SVB) did not hold enough capital for its securities portfolio, 
which had large unrealized losses, and that SVB had to sell 
their portfolio at a steep loss to try to meet demands by 
depositors withdrawing their money.
    SVB didn't have to hold capital because a decade ago, our 
regulators, led by Trump, deviated from the Basel III framework 
to allow regional banks to opt out from holding capital 
relating to a category called Accumulated Other Comprehensive 
Income (AOCI), which includes a bank's securities portfolio. 
Trump's regulators made this worse by expanding how many banks 
could opt out, including banks like SVB.
    Ms. Marcellin, do you agree that U.S. banking regulators 
made a mistake by deviating from the Basel III agreement to 
allow banks like SVB to opt out from holding capital for their 
securities portfolio with large unrealized losses?
    Ms. Marcellin. Thank you, Congresswoman, for that question.
    Yes. Absolutely. And the law that you point to that was 
essentially deregulatory for regional banks--we continue to see 
it wasn't just SVB, but the string of failures which mostly was 
contained to those regional banks because they did not have the 
safety and soundness measures, which were pushed heavily by the 
Trump Administration, to think that regional banks do not pose 
the same level of systemic risk as larger banks. And we saw the 
consequences of that.
    Thank you.
    Ms. Waters. Thank you very much.
    Further, Ms. Marcellin, would you also discuss why Congress 
should not be discouraging but rather, encouraging, the Federal 
Reserve, the FDIC, and the OCC to engage with their foreign 
counterparts on banking regulatory matters?
    It seems like other countries are much further ahead in 
taking steps to address climate-rated financial risks. For 
example, in the United Kingdom, their regulators included 
climate change in its insurance stress testing 4 years ago, and 
the Bank of England designed their 2021 stress test to aid 
their economy's transition to net zero and to analyze climate-
related risk on capital requirements.
    Are there things our regulators can learn from them in 
determining how best to update requirements to ensure our banks 
are adequately considering and addressing climate-related 
financial risk?
    Ms. Marcellin. Yes, absolutely.
    First, our banks, according to the Financial Stability 
Board (FSB), are the most globally-interconnected banks. 
Regulators--especially the Fed, in fulfilling its mandate to 
ensure safety and soundness--need to be able to have insights 
into these banks' activities that, frankly, are borderless. And 
the only way to do so is to make sure that they are 
coordinating with their global counterparts.
    And because of our interconnectedness, we also have unique 
risk, in that we have to consider counterparty risks of various 
countries' various banks across the world. And, again, the only 
way to fully do that comprehensively is to engage in these 
global standard-setting bodies.
    And, to the point of climate risk, it is a global crisis, 
it is a global phenomenon. To think that one country, on its 
own, can solve that or can address it without working in tandem 
with others would be a mistake.
    As I noted in my testimony, even for our banks, for them to 
continue to be global players on this scale, they have to 
want--it is in their interest to have the regulators continue 
to participate in these bodies.
    Thank you.
    Ms. Waters. Thank you.
    So, basically, what we are concluding, and perhaps you are, 
too, is that our hesitancy does not help us to understand 
creative ideas and new ideas and ways by which we can deal with 
climate change.
    Ms. Marcellin. Yes, exactly.
    Ms. Waters. Thank you very much. And I yield back.
    Chairman Barr. The gentlelady yields back.
    The gentleman from Florida, Mr. Posey, is now recognized.
    Mr. Posey. Thank you very much, Mr. Chairman.
    Cutting right to the chase, Mr. Bashur, do you think it is 
beneficial for the United States to let foreign bureaucrats 
dictate our financial standards?
    Mr. Bashur. No, it is not beneficial at all.
    Unfortunately, I feel that over the past few years, a lot 
of legislative power has been ceded to the Executive Branch. 
And I think that needs to be reined back in.
    The Basel Accords have never been ratified as a treaty, nor 
as an executive agreement. There is no reason that the Fed 
should be using their discretion like this to pursue something 
that has not been clearly authorized by Congress.
    Mr. Posey. Okay. Dr. Hoenig?
    Mr. Hoenig. I understand the need for cooperation in the 
international world in which we live. My concern is that when 
we talk about it in the Basel III framework, we are now 
politicizing the whole process. And how you influence the 
outcome at these negotiations at the staff level and how they 
come back and are talked about in the board meetings and so 
forth as you go forward from here is opaque.
    You hear about how the foreign interests think that we 
ought to have accounting for green, we ought to have risk 
weights for green energy. Well, that assumes that the 
regulators have more knowledge than they have, to be able to 
assess what that risk is.
    And then, they put in this risk-weighted system that is 
opaque and difficult to understand, and you then can 
misallocate. So, do you put higher risk weights on energy that 
is carbon-emitting? And then, do you favor green energy? Now, 
you are directing capital resources within the industry, under 
the banner of a risk-weighted capital system. And I think the 
outcomes are often perverse. You actually get worse outcomes 
than you would if you just said, here is how much capital the 
industry has to have, and they have to allocate it in their own 
best interest.
    And I can tell you, the banking industry has been dealing 
with climate issues for centuries. They are going to adjust to 
these effects in terms of their own risk-taking. And the 
industry can do it as well as, or better than, a centralized 
authority assigning risk weights through a very complicated, 
opaque, and often totally un-understandable framework, which is 
called Basel III.
    Mr. Posey. Thank you.
    Professor Skinner?
    Ms. Skinner. No, I don't agree that it is appropriate to 
cede authority, especially now, because I think where the 
rubber meets the road is that these organizations have crossed 
over into territory which is now politically contested among 
jurisdictions, and involves choices that are inherently fiscal 
in nature. Who wins and who loses in an economy--those choices 
have to be made by a legislature, not by unelected central 
bankers, whether that is domestically or internationally. And 
right now, climate is the signature example of that, but you 
could imagine other examples down the road.
    Because there are no clear rules in U.S. law about what the 
parameters are for these organizations' mission and function 
mandate and how the U.S. is to engage, not only is it very 
difficult to see into the decision-making process, but it is 
also very difficult to rein it in.
    Mr. Posey. Thank you.
    Mr. Chairman, I yield back.
    Chairman Barr. The gentleman yields back.
    The gentleman from Illinois, Dr. Foster, is now recognized 
for 5 minutes.
    Mr. Foster. Thank you. And thank you to our witnesses for 
being here.
    One of our duties in Congress is to respond to the world as 
it actually is rather than the fever dreams of some sort of 
takeover by world government. So, let's do some level-setting 
here.
    Ms. Marcellin, first, what statutory obligation do U.S. 
regulators have to automatically implement the recommendations 
of these organizations? Can Basel III simply order U.S. banking 
regulators to pass rules?
    Ms. Marcellin. Thank you for that question. No, 
Congressman, there is no statutory obligation they have to 
implement any of this. And, actually, as we have even seen with 
this latest proposal, they usually make significant tweaks to a 
proposal to adapt to the U.S. market and size before they try 
to implement it here.
    Mr. Foster. Yes. And to the extent that they actually 
represent, sort of, best practices that are adopted 
internationally, does the U.S. see some value in having its 
banking regulators at the table there in producing, for 
example, the Basel III Endgame and other standards of best 
practices?
    Ms. Marcellin. Yes, absolutely. One example that we could 
point to, as has been brought up by other witnesses, is the 
supplemental leverage ratio. That, going to the original Basel 
III, was actually one of the advents of U.S.-based regulation, 
that even former Treasury Secretary Geithner said that 
expanding to just have a simple, clean supplemental leverage 
ratio that includes off-balance-sheets exposure was really 
something that the U.S. pushed for, and we see got implemented 
in other countries, and that the Basel Accords took into 
account when forming their various accords.
    Mr. Foster. Thank you.
    Mr. Hoenig, I sort of have shared in the past your dream 
that you can just make an objective set of numerical standards 
to define capital positions of banks. But in reality, most of 
the impact of Basel III is going to be operational risk for the 
giant banks. That is numerically about, roughly, 80 percent of 
it.
    And this is necessarily subjective. For example, is it 
obvious to you or any one of our panelists how much capital we 
should hold against AI-driven deep-fake impersonations 
destabilizing our system, or should we ignore that risk? Is it 
obvious how much capital should be held against the risk of 
quantum computers breaking public key cryptography, shutting 
down the Society for Worldwide Interbank Financial 
Telecommunications (SWIFT), shutting down the internet, 
basically?
    So, is it really your advice that there is some objective 
way to set bank capital requirements?
    Mr. Hoenig. Certainly, I don't think Basel is the way to do 
it, because it assumes knowledge that they don't have. They 
assign risk for operational risk. Is it the right level? Have 
they done too little or too much? Do they assign risk to the 
lent loans at 1 and others at half that much so you encourage 
capital flow to the less-heavily weighted activity? You get all 
of these distortions.
    And you also get politicization of the whole process. As 
you negotiated Basel, it is what your country is looking for, 
what they want as favored, and you have these negotiations.
    I understand that you cannot identify individual risks. 
That is the whole point. You have a set of capital that the 
banking industry has to allocate; it has to allocate based on 
their understanding of risk. And, yes, the supervisors come in 
and double-check that, but they are not telling the banks how 
to allocate that to their perception of what risk, rather than 
what the market perceives as risk and what experience and 
history say.
    That is why the leverage ratio, while it is simpler, is 
also clearer. If I know you have only 7-percent capital that 
you can afford to lose before you are insolvent, then, I know 
something. If I tell you that you have a risk-weighted ratio of 
14 percent, 14 percent of what? So, half of the balance sheet 
is weighted and the other half is the equivalent of risk-free? 
I don't have any information there that is really helpful.
    I think you have to understand that the banking business is 
a risk business, and how much capital they have is important. 
So, let's have the argument over what is enough capital that 
the banks can absorb loss, rather than how much we allocate to 
green, how much we allocate to loans, or how much we allocate 
to collateralized debt obligations, which no one can really 
tell you.
    You are in this opaque world, and that is where you get the 
opportunities for abuse and for game-playing among countries 
and within countries. That is why it is a very bad choice.
    Mr. Foster. Okay. Thank you for your words.
    And I yield back.
    Chairman Barr. The gentleman from Missouri, Mr. 
Luetkemeyer, who is also the Chair of our National Security 
Subcommittee, is now recognized.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. And welcome to 
our panelists.
    Mr. Hoenig, it is good to see you again. Thank you for your 
insightful comments and your many years of regulatory 
leadership.
    The first question is for you. You were talking a little 
bit ago about all of the different machinations of this Basel 
rule and how it was implemented. To your knowledge, has there 
been a cost-benefit analysis done of this rule and the rules 
that were being implemented as a result of Basel III?
    Mr. Hoenig. Not to my knowledge. There has been no specific 
cost-benefit analysis done.
    Academics and others have tried to do that, and basically 
they find that the benefits of the leverage ratio far outstrip 
that of the risk-weighted-capital measure. But beyond that, we 
are talking about hundreds of millions of dollars, in terms of 
the regulatory agencies--they have specialists on this--the 
banking system trying to meet it. So, it is very expensive. 
And, no, I have not seen any real cost-benefit----
    Mr. Luetkemeyer. So, if we don't know what it is going to 
cost, why are we implementing this? Is there another agenda 
perhaps?
    Mr. Hoenig. I think it is one of these things that, 
originally, it was designed to try and get the international 
community to raise capital. That is why it was----
    Mr. Luetkemeyer. Yes.
    Mr. Hoenig. And I don't think that has been achieved, if 
you look at the long history of capital.
    Mr. Luetkemeyer. Professor Skinner, you nodded your head a 
minute ago on my comment. Would you like to elaborate on that?
    Ms. Skinner. It seems to me that the direction of travel 
for the Basel Endgame rule is to give the regulators more 
control over defining what is a credit risk and, therefore, to 
whom and against what assets banks should lend, rather than 
having the banks make that decision for themselves.
    Mr. Luetkemeyer. It looks to me like we are kind of in a 
modified Operation Choke Point situation here, where they are 
able to use these new rules and regulations to hit the banks 
over the head and modify their business model to satisfy the 
regulators' point of view and their activism toward a green 
economy.
    Mr. Bashur, and Ms. Skinner, you have both made comments 
with regards to the question of where this rule really came 
from, from the standpoint that it didn't come from Congress. In 
order for the regulators to have the authority to promulgate 
rules, it needs to come from Congress. They can't pull this out 
of the air.
    Would you like to elaborate just a little bit more? How are 
they justifying the ability to take rules from other countries, 
impact our system, which is the finest in the world, and bring 
it down to their level with these new rules? Because we didn't 
authorize this to happen, I don't believe.
    Can you clarify that, please?
    Ms. Skinner. It is a big hole in the rule.
    The ostensible statutory basis is the Dodd-Frank Act, which 
authorized, of course, the implementation of Basel III back in 
2013, and this is sort of being presented to the public as the 
finalization of the Basel regime. And, as I noted, Dodd-Frank 
is now 13-years-old, so it is implausible that it is continuing 
to provide a statutory basis.
    It seems also that part of the rule is motivated by the 
events that transpired in March of this year with SVB, but, of 
course, there is no statutory basis for a rule.
    Mr. Luetkemeyer. Are those rules supposed to be 
administered under the Administrative Procedure Act?
    Ms. Skinner. The rule that has been proposed will have to 
go through the Administrative Procedure Act.
    Mr. Luetkemeyer. Isn't part of the Administrative Procedure 
Act having an economic analysis done?
    Ms. Skinner. There are different forms of cost-benefit 
analysis that regulators are required to do, and a lot of 
times, regulators will do a cost-benefit analysis as good 
regulatory practice, but claim that they are not technically 
required to do a cost-benefit analysis.
    Mr. Luetkemeyer. Mr. Hoenig just said he doesn't think they 
are doing it at that level.
    Mr. Bashur, would you like to elaborate a little bit on 
that?
    Mr. Bashur. It could be that they are trying to use the 
International Lending Supervision Act as some sort of 
legislative authority. But the problem with that is that was in 
response specifically to the Latin American debt crisis, and 
that was specifically to tamp down on potential risky 
international foreign debt specifically. This rule goes far 
beyond that.
    Mr. Luetkemeyer. It would seem that the regulators are 
trying to become activists instead of regulators.
    My thought process about the regulators, having been one 
many, many years ago when Moses walked the Earth, was that they 
should be enforcing the existing law, not making up new rules 
and regulations as their own ideas and political bias allow 
them to do in certain situations.
    Again, we have another situation here, in my mind, if you 
don't do the economic analysis of this. It is like the Current 
Expected Credit Losses (CECL) situation. I told everybody, when 
this is going to happen, it is going to be a really bad 
situation, because you can't have two banks sitting across the 
street from each other having different economic models or 
justifications for the way they analyze their loss categories.
    And then, you have a situation here where we haven't done 
our background, haven't done the analysis on this, have no idea 
what we are doing, and yet, we are going to push these rules on 
our banks, not knowing any kind of consequences of this. This 
is asinine. This is crazy. This is asking for trouble, in my 
mind.
    Mr. Chairman, with that, I yield back.
    Chairman Barr. The gentleman yields back.
    The gentleman from California, Mr. Sherman, is recognized.
    Ms. Velazquez. When am I recognized?
    Chairman Barr. Sorry. The gentlelady from New York is 
recognized.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Ms. Marcellin, the purpose of the Basel III Endgame 
proposal is to improve the resilience and stability of the 
global banking system. Critics of the proposal say the rule 
assigns too much risk weight to small-business loans in 
standardized models.
    As the ranking member of the House Small Business 
Committee, I am always concerned about small businesses' 
ability to access capital. Can you explain how regulators 
address this concern?
    Ms. Marcellin. Yes. Thank you, Congresswoman Velazquez, for 
that question.
    In the Basel proposal, which has moved away from what was 
previously known as the advance approaches, to now taking a 
more standardized approach--this kind of proposal will actually 
lower the capital requirements required for credit lending 
overall, the credit risk weights.
    Furthermore, as I have mentioned in both my written and 
oral testimony, many studies have suggested that well-
capitalized banks actually do more lending, especially when you 
account for the entirety of the business cycle, because during 
hard times, they are able to fall back on that cushion better 
than banks who are less-capitalized.
    And, again, going back to my point about capital not being 
money in a vault, unable to be lent, it is just a matter of how 
they are sourcing their activity, whether it be through debt or 
whether it be through equity, and that money is not sitting 
somewhere that can't be put to use for the economy.
    Ms. Velazquez. And the proposed rulemaking includes a 
significant on-ramp for compliance, including 2 years for the 
largest banks, and another 3 years, until 2028, for Category 
III and Category IV banks.
    Can you explain how this will limit harm to the 
availability of credit for small businesses?
    Ms. Marcellin. Yes, absolutely. It gives the banks, through 
their compliance, through their banking relationships with 
small businesses, a time--again, taking into account what I 
said, that the risk weights are actually reduced, but it gives 
them time to adjust for this, adjust for their business model 
being impacted by these rules.
    And also, I want to emphasize that this proposal is really 
limited to less than 50 banks, right? Most of small-business 
lending relationships are not with the G-SIBs of the world; 
they are with community banks. That's why we want to stress the 
importance of community and small-business relationships and 
having diversity in our banking sector.
    Ms. Velazquez. And to put this issue to rest, isn't it true 
that community banks provide the majority of small-business 
loans in this country and that community banks are exempted 
entirely from this proposal?
    Ms. Marcellin. Yes, community banks are entirely exempted. 
And I believe they do provide a very material source of funding 
for small-business loans.
    Thank you.
    Ms. Velazquez. Ms. Marcellin, earlier this month, the 
Federal Reserve published its Financial Stability Report for 
October 2023.
    The report states that, ``The attack on Israel, in 
conjunction with Russia's ongoing war with Ukraine, has 
escalated political tensions. These tensions pose important 
risks to global economic activity, the global financial system. 
And we could see declines in asset prices and losses for 
exposed businesses and investors in the U.S.''
    Would you agree with the Fed's report?
    Ms. Marcellin. The Fed are really experts on analyzing 
geopolitical and macroprudential risk, so I would defer to them 
on what they believe is a risk to financial stability.
    So, absolutely, another reason why capital is important, 
because it helps to account for these various things that are 
really outside of any one bank's control.
    Ms. Velazquez. And do you think now is the time to pull 
back from the international arena, as some on the other side of 
the aisle seem to be arguing?
    Ms. Marcellin. Oh, absolutely not. As evident by the 
multiple global crises happening at the same time right now, 
whether it be climate-change risk, or whether it is what is 
happening in Ukraine, or Israel and Hamas, our standing as a 
global leader right now is too important to pull back.
    Thank you.
    Ms. Velazquez. Thank you.
    Mr. Chairman, I yield back.
    Chairman Barr. The gentlelady yields back.
    The gentleman from Texas, Mr. Williams, who is also the 
Chair of the House Small Business Committee, is now recognized.
    Mr. Williams of Texas. Thank you, Mr. Chairman.
    And I thank all of the witnesses for being here today.
    Despite Fed Chairman Powell's asserting before this 
committee that the Federal Reserve is not and will not be a 
climate policymaker, his agency's actions have shown otherwise. 
The Federal Reserve, the FDIC, and the OCC have proposed 
guidance and principles for financial firms on climate-related 
financial risk management.
    This is concerning, as financial regulators under the Biden 
Administration are calling for climate policies to be included 
in banking regulations. This extends the Federal banking system 
beyond its intended purpose and threatens the agency's long-
term independence.
    So, Mr. Bashur, what are the consequences of the Federal 
Reserve becoming political? And given the Fed's recent efforts 
surrounding climate-related risk, do you think the Fed is going 
down the path of becoming a climate policymaker?
    Mr. Bashur. Yes, I think they are becoming much more 
amenable to being a climate policymaker. I think that is 
evidenced by the interagency guidance that was released just a 
couple of weeks ago, that they issued as just guidance and not 
going through the formal APA process.
    I think that this consideration of climate risk is just 
along the race to the top, in that we started with credit risk 
in Basel I; then we added market derivatives risk, operational 
risk, and now, we are potentially adding climate risk. So, 
where does it end? I think that is the problem. And maybe, 
there is no top; maybe, it is just on to infinity. And I think 
that is the concern.
    I think that if this stays the course, it is just going to 
be more regulations after more regulations. And while, 
obviously, there needs to be safeguards in place, we don't want 
to see the banking sector in a situation where they basically 
become utilities.
    Mr. Williams of Texas. Yes. And I am a small-business 
owner. It comes back to hurt small business in the end, too.
    The Basel III Endgame proposal's goal was to promote parity 
across jurisdictions. However, I have concerns that other 
countries, such as China, the U.K., and the rest of Europe are 
implementing select parts of this proposal.
    The decision by Federal regulators to pressure the U.S. to 
implement more-stringent standards than the rest of the world 
will create an unlevel playing field with financial 
institutions and constrain G-SIBs in the United States. The gap 
between U.S. and European capital levels will continue to grow, 
and the consequences of these decisions will drive adverse and 
unwelcome changes to market access and the availability of 
credit.
    Ms. Skinner, can you expand on whether the Basel III 
standards will create a competitive advantage for European 
banks? And what will the effects of this European advantage be 
on the American public and our domestic banking system's 
competitiveness on the world stage?
    Ms. Skinner. Thank you for the question.
    Certainly, the Europeans have looked at the Basel III rule 
and decided that some of it is not for them, because they are 
concerned about the competitiveness of their banking sector.
    The European Union has, for a very long time, tried to 
model what the United States has done with its capital markets 
through its initiative for a Capital Markets Union. And, to 
that end, the Europeans are planning to implement Basel III in 
a different way, that will continue to stimulate corporate 
lending by assigning a lower risk weight or making it easier 
for certain loans to small and medium-sized businesses to have 
a lower risk weight, where we are going about this business of 
gold-plating or platinum-plating, if you will. And I think it 
will put the United States on a very different competitive 
field from the European Union and from the United Kingdom.
    Even after the 2008 financial crisis, when the U.K. was 
implementing its, sort of, equivalent of the Dodd-Frank Act, 
various senior-level bank regulators had this expression, ``We 
want to avoid the financial stability of the graveyard,'' which 
is to say, financial stability is important but we are not 
going to regulate our banks to death so that we no longer have 
a competitive banking sector.
    And now, the Bank of England has a mandate for competition, 
so it is going to be thinking about how it will implement Basel 
III in a very different way than the United States.
    Mr. Williams of Texas. In other words, we are giving up our 
leadership.
    Mr. Bashur, quickly, my last question I will get to here: 
Could you elaborate on how the Basel III proposal will impact 
bank lending and the cost of credit for borrowers? And, 
finally, what does this mean for small businesses, like mine in 
Texas, trying to obtain a loan?
    Mr. Bashur. It will increase the cost of credit, because 
the ratios are equity to assets, and if you have to increase 
the numerator, then it is going to make it a lot more expensive 
for borrowers to get access to that credit, especially small 
businesses.
    I think there have been a few surveys out there that have 
actually said that a lot of small businesses are concerned 
about the tightening credit conditions from this rule.
    Mr. Williams of Texas. And if you put interest rates on top 
of that, it gets even harder, doesn't it?
    Mr. Bashur. Yes, absolutely.
    Mr. Williams of Texas. Yes.
    Mr. Chairman, I yield back. Thank you all for being here.
    Chairman Barr. The gentleman yields back.
    The gentleman from California, Mr. Sherman, is now 
recognized.
    Mr. Sherman. Thank you.
    If our standards are too low, we are going to see bankrupt 
banks and bailouts. If our standards are too high, we are going 
to constrain economic growth and especially constrain small-
business lending.
    Our standards are higher than those of Europe, and that 
ties to a different insurance system. In Europe, deposits, I 
believe, are insured to 100,000 euros. Here, it is to $250,000, 
with more than twice as much governmental involvement in 
securing depositors.
    While you can argue for lower standards, and you can argue 
for higher standards, you can't argue for stupid standards. And 
when we get involved in some of these details, I want to 
illustrate that some of these standards don't meet an 
intelligence test.
    But we should not call these European standards. The 
responsibility, positive or negative, belongs to the three 
major U.S. regulators. They are just waving the Basel flag when 
they want to do something and saying, ``Oh, the Europeans are 
suggesting it,'' and then, when the Europeans suggest something 
they don't like, they ignore it.
    As Representative Foster's questioning demonstrated, all of 
the power is with the U.S. regulators. And if these regulations 
are good or bad, that is entirely the result of Americans. Yes, 
we listen to foreign regulators. We also listen to economics 
professors, neither of which are mentioned in the U.S. 
Constitution.
    How we allocate capital is important, particularly big 
versus small loans. What seems to be favored in our society is 
people in thousand-dollar suits, making a million dollars a 
year, and making billion-dollar and multibillion-dollar 
investments in securities. And those people always have fancy 
business degrees. What is disadvantaged is Main Street loans to 
Jack's Pizzeria.
    And needless to say, our regulators favor the first group, 
because they all have fancy degrees too, and they like to look 
at big pictures, and who wants to go down to Jack's and sample 
the pizza?
    So, when we have credit risk, the small business has credit 
risk, and we are all focused on that. The interest-rate risk, 
which is what took down Silicon Valley Bank, we give short 
shrift to, because, after all, those are the decisions made by 
the big fancy people with their big billion-dollar bets and 
their big fancy degrees. Having an economy that is weighted 
toward the giant loans is, I think, really a bad idea.
    Now, speaking of stupid regulations, can anyone here please 
raise your hand if you can come up with an argument, or even 
half an argument, for the idea of ignoring private mortgage 
insurance in evaluating the risk of holding a mortgage loan?
    I am looking here. None of you can even come up with the 
slightest argument in favor of that incredibly stupid idea. 
Okay.
    Ms. Marcellin, you talked about the importance of climate 
risk. And yet, these new Basel rules increase by a factor of 
four the risk associated with the tax equity investments for 
green energy.
    I don't know if your organization has focused on that. You 
have focused on other aspects affecting climate. Can you think 
of a reason why we should adopt regulations that penalize banks 
for being involved in the tax credits designed to encourage 
green energy?
    Ms. Marcellin. Yes, thank you for that question, 
Congressman Sherman.
    First and foremost, I do want to say that mitigating 
climate change and----
    Mr. Sherman. Excuse me. I am talking here about just one 
little detail, and that is the tax credits. Are you for or 
against clamping down on banks that invest in these tax credit 
projects and give us clean energy?
    Ms. Marcellin. The largest banks that do this are J.P. 
Morgan and Wells Fargo, and they are benefiting off of the tax 
credits, yes.
    Mr. Sherman. That was the intention when we passed the law. 
Should we now penalize them through the bank regulatory system 
for doing that?
    Ms. Marcellin. I don't know if I would characterize it as 
penalizing them, but I think it is the----
    Mr. Sherman. I do want to try to squeeze in one other 
thing, and that is that the rules for, ``high-quality corporate 
exposures,'' are, once again, in Basel, designed to 
discriminate against making those Main Street loans and pushing 
banks into making the billion-dollar loans and the securities. 
And perhaps, we should have a rule against having too many 
people with elite degrees making these rules.
    I yield back.
    Chairman Barr. The gentleman yields back.
    The gentleman from South Carolina, Mr. Norman, is 
recognized.
    Mr. Norman. Mr. Hoenig, I found it interesting--did I hear 
you right; I may have come in late--when you mentioned that, as 
it relates to Basel, you have people making decisions who 
really don't have the knowledge base to back them up?
    Mr. Hoenig. That is correct. That means you have regulators 
who are not experienced assigning, in a sense, allocating 
capital across the bank's balance sheet.
    Mr. Norman. Yes. And, evidently, the boards of directors 
are letting that go.
    I am in the real estate business, and have been in it for a 
long time. We faced the biggest crisis that we have faced in a 
long time as far as, as Representative Williams mentioned, 
getting capital to fund projects. The dollars that are going 
now to build projects are out of the roof, if you can get the 
products to build them.
    As it relates to that, you have the Federal banking 
agencies issuing these principles for financial institutions to 
manage exposure to climate risk. Can you define what they are--
I know the tax credits and other--and what else are they 
imposing on banks that is going to ultimately cost the 
taxpayers and the borrowers?
    Mr. Hoenig. There are all kinds of things. In the proposal, 
there are rules that would modify the relative weights for some 
mortgages, in an effort to make the smaller banks more 
competitive with the larger banks. That has nothing to do with 
financial safety and soundness. It has to do with someone's 
view that someone should be more competitive. So, you are 
allocating your rules to influence behavior.
    And that is the problem with Basel. It is having the 
central authority, regulators, allocate capital among uses on 
the bank's balance sheet. Rather than the banks doing it, and 
the regulator making sure that they are doing it under safe and 
sound underwriting practices, they are now directing where 
credit goes.
    Mr. Norman. And the sad part about it is, the regulators 
don't have the knowledge or the experience to make those kinds 
of calls. That is the bank's call.
    Mr. Hoenig. That is correct.
    Mr. Norman. They are the ones who have to answer to the 
stockholders and the shareholders.
    Mr. Hoenig. That is correct.
    Mr. Norman. And everything is secret. The global governance 
bodies have secret meetings. How do we publicize that? How 
would you suggest we see what goes on behind the closed doors?
    Mr. Hoenig. They are having these meetings to discuss these 
capital rules, and, to my knowledge, there are not minutes kept 
of those meetings, not transcripts kept of those meetings.
    And if you want to bring it forward, you would require that 
if the U.S. engages in these conversations, that there be 
minutes of it or records of it and that those be available to 
the public.
    Mr. Norman. And that is Congress' role, to put that in 
place?
    Mr. Hoenig. I think Congress is the one that has to do it, 
yes.
    Mr. Norman. We are really the only ones that can do it. We 
are the only ones to whom they ultimately answer.
    Mr. Hoenig. That is exactly right.
    Mr. Norman. I guess my other concern--Mr. Bashur, we have 
been asking questions about the Bank of China, and the Central 
Bank of Russia being involved in our financial institutions 
with ownership, and all of our secrets being shared.
    How do we deal with that, from your vantage point?
    Mr. Bashur. It is all the more reason why we need 
transparency and copies of minutes, so that we know if the 
Chinese or the Russians are saying, oh, we want these 
provisions in the accords or we want to remove this provision. 
We need to be able to see that, and we can't currently. And 
that would, I think, give us a much better idea of specifically 
which countries are asking for what kinds of provisions in 
these regulations.
    Mr. Norman. Mr. Hoenig, do you have any comments on that?
    Mr. Hoenig. I don't have any additional comment than what I 
have already made.
    Mr. Norman. I thank each one of you for testifying, for 
being here. It is very important. As goes the banking industry, 
so goes the economy. And we have some real headwinds we are 
facing.
    Mr. Chairman, I yield back the balance of my time.
    Chairman Barr. The gentleman yields back.
    The gentleman from Georgia, Mr. Scott, is recognized
    Mr. Scott. Thank you, Chairman Barr. I appreciate that.
    Ms. Marcellin, I want you to know that I believe the 
Federal Reserve is being pulled in two separate directions: on 
the one side, the critical strengthening of our banking system; 
but on the other, preserving the ability for underserved 
African Americans and other minority borrowers to obtain a 
mortgage and purchase a home.
    Now, I support both of those goals. And I have yet to see 
how the Fed will ensure that Basel III Endgame does not unduly 
affect mortgage lending and, in particular, mortgage lending to 
those who need their help the most.
    Ms. Marcellin, do you agree that, if enacted, the mortgage 
lending provisions in Basel III will require our nation's 
largest banks to hold significantly more capital against those 
types of mortgage loans and, specifically speaking, for the 
borrowers with a down payment of less than 20 percent?
    Ms. Marcellin. Thank for that question, Congressman Scott.
    I certainly understand the concern. I want to say that non-
bank lenders actually account for more home-purchase loans than 
the largest banks. They are the primary source of credit for 
low- and moderate-income communities' and Black, Indigenous, 
and people of color (BIPOC) communities' mortgages as well.
    I also want to reiterate that when capital requirements 
were lower for banks, banks weren't exactly lending in droves 
to Black and Brown communities. We have about 400 years of 
systemic racism as to why banks were choosing not to lend to 
Black and Brown communities.
    And I am not sure if this specific requirement here, 
especially when they are exiting the market in droves, will 
actually have much of the overstated impact on Black and Brown 
homeownership as claims have been made.
    Mr. Scott. So tell us, how do you anticipate that this will 
impact the banks' incentives to make these loans to low-income 
Americans?
    Ms. Marcellin. I think it can have an impact. I think that 
the Fed, even in their proposal, has signaled--and the other 
prudential regulators have signaled that they are open to also 
maintaining the current risk weight, which I believe is 50 
percent for low-income borrowers.
    Again, this is something that I am happy to work with your 
office on and, of course, with the regulators about, but I do 
want to be careful about harping or using this as a distraction 
to the overall goal, when these banks are not really lending to 
people like me in the first place.
    Mr. Scott. Absolutely. And we have to be very careful to 
make sure that it does not have this outsized impact on those 
who need the help the most.
    Mr. Bashur, I am aware that recently, Fed staff hinted at 
the possibility of adjusting the new bank capital rules 
impacting mortgage lending. What kind of adjustment would you 
recommend that they focus on?
    Mr. Bashur. I would recommend that the regulators leave it 
to the banks to decide what is risky and what is not. They 
already have to comply with Community Reinvestment Act (CRA) 
guidance and Federal statute. And I think by rolling that back 
in the bank capital rule, it would give banks the opportunity 
to assess the risk and comply with the statute that is already 
on the books.
    Mr. Scott. Thank you for your response, but I must say 
that, much like Chairman Barr and other Members on both sides 
of the aisle, my concern centers on how even a well-intentioned 
proposal could further reduce borrowing costs for wealthy 
individuals at the expense of low- and middle-income people.
    Thank you, Mr. Chairman.
    Chairman Barr. Thank you, Mr. Scott.
    And the gentleman from Tennessee, Mr. Rose, is now 
recognized.
    Mr. Rose. Thank you, Chairman Barr, for holding this 
important hearing.
    And thank you to our witnesses for being with us today and 
taking time out of your schedules to share with us.
    It is clear that Congress is not brought actively into the 
process before U.S. regulators take up implementation of 
international standards such as the recent Basel III Endgame. 
In most instances, these international standards are a foregone 
conclusion even before a U.S. proposal is formally issued.
    Mr. Bashur, how can Congress improve its oversight of U.S. 
engagement with the international standard-setters?
    Mr. Bashur. I think you need to require the U.S. regulators 
to submit minutes, to submit reports, to come in and testify, 
to engage with Congress--and it could be closed-door meetings--
just so that Congress is fully aware of what is going on and 
Congress can assess it. And if Congress wants to write 
additional legislation to dictate certain capital standards, 
then they can do that.
    Mr. Rose. And you would suggest that legislation be put in 
place which requires that consultation in advance, and keeping 
Congress abreast of what is happening?
    Mr. Bashur. I would recommend that, if Congress wants to be 
engaged in the capital requirements process, they need to write 
legislation to do that themselves.
    Mr. Rose. Okay.
    Ms. Skinner, in your written testimony, you state that 
Congress cannot abdicate its legislative power by excessive 
open-ended delegation. And I completely agree with you.
    But I am profoundly worried that the Biden Administration 
believes just the opposite. I am worried that the Biden 
Administration feels that they can usurp Congress' legislative 
power through the implementation of international standards 
like the Basel III Endgame.
    Ms. Skinner, how can Congress forcefully assert its status 
as the sole legislative body in this country and improve its 
oversight of U.S. engagement with international standard-
setters?
    Ms. Skinner. Thank you for the question. I think there are 
a couple of ways.
    First, if U.S. regulators are planning to engage in these 
forums to create concrete standards, supervisory principles, 
Congress should insist that there is a clear statutory basis 
for these regulators approaching these forums and developing 
these standards.
    Second, I think Congress may wish to set some parameters or 
push back on the regulators' participation in some of these 
forums in certain contexts. And I think participation in the 
NGFS is a good example of that. The Fed, unlike many of the 
other member participants, does not have a mandate to 
proactively tackle climate change, not with its balance sheet, 
not with regulation, and ideally, not with supervisory suasion.
    Mr. Rose. Thank you very much.
    Mr. Bashur, as you are aware, and you highlight in your 
written testimony, there are multiple Chinese entities that are 
members of the Basel Committee, such as the China Banking 
Regulatory Commission. I know you have already touched on this, 
but I think it bears reiterating.
    Given that Chinese entities sit on the Basel Committee, how 
can we be sure that the Government of China is not playing an 
outsized role in setting international standards that could 
ultimately be adopted by Biden-appointed U.S. regulators?
    Mr. Bashur. It is possible that they are playing a large 
role; we just don't know.
    But I think what also is really concerning are the peer 
reviews that these agencies perform. The International Monetary 
Fund (IMF), the Financial Stability Board (FSB), and Basel all 
perform reviews. The FSB actually says to use the IMF peer 
reviews, and those IMF reviews use the Basel metrics for 
supervision.
    And I think that a lot of the regulators are more concerned 
about the peer pressure from these international organizations 
that have Chinese and Russian members than they are--they are 
more concerned about them than they are listening to what 
Congress wants and what the elected representatives of this 
country want.
    Mr. Rose. Thank you.
    Mr. Bashur, your written testimony also discusses the 
influence of state-sponsored entities, such as those affiliated 
with China, Russia, in the Basel Committee, the Financial 
Stability Board, and the Network of Central Banks and 
Supervisors for Greening the Financial System.
    Is there enough information available for the American 
public to determine how much influence the Governments of China 
and Russia are wielding at these international organizations?
    Mr. Bashur. No, there is not enough information available. 
We need legislation to get that transparency.
    Mr. Rose. And, finally, what steps can Congress take to 
promote greater transparency into the role that state-sponsored 
entities play at these international organizations that are 
unaccountable to the American people?
    Mr. Bashur. The committee already has legislation that they 
passed through markup, Vice Chairman Loudermilk's bill, which I 
think is a great first step. Once you can get that transparency 
and actually see the minutes and the reports and the 
discussions that everyone is having, then you can go from 
there.
    Mr. Rose. Thank you.
    I yield back.
    Chairman Barr. The gentleman from California, Mr. Vargas, 
is now recognized.
    Mr. Vargas. Thank you very much, Mr. Chairman. I like to 
make a grand entrance.
    Chairman Barr. You do. You always do.
    Mr. Vargas. I want to thank you and the ranking member for 
this hearing. And I especially want to thank the panelists for 
taking the time to be here. I appreciate it very much.
    The issue of climate change has been thrown around here by 
almost everybody. So, why don't I ask just a basic question: 
How many people here believe in climate change?
    Mr. Bashur, why don't I start with you?
    Mr. Bashur. I am here representing ATR, and ATR does not 
weigh in on climate science or climate change.
    Mr. Vargas. I am just asking, do you believe in it?
    Mr. Bashur. Right. I am here representing Americans for Tax 
Reform. We don't weigh in on the issue of climate change or 
climate science.
    Mr. Vargas. That has been brought up by a whole bunch of 
people here today, but you don't have an opinion, your group 
doesn't have an opinion on climate change, on whether or not it 
is real?
    Mr. Bashur. ATR does not weigh in on that issue.
    Mr. Vargas. So, even though so much of this hearing is on 
the basis of climate change, you are not going to comment on 
that?
    Mr. Bashur. I can clarify. We weigh in where the government 
is issuing subsidies with regard to renewables, as it relates 
to that, or as it relates to the definition of, 
``materiality,'' that the SEC uses. But in terms of actually 
looking at climate models or climate science, we just don't 
weigh in on that.
    Mr. Vargas. Okay. Thank you.
    Mr. Hoenig?
    Mr. Hoenig. I think there is a real issue with climate 
change. I don't know what the degree of it is, and neither do 
the regulators. I don't know what the timing of it is, and 
neither do the regulators.
    As I said earlier, banks have been dealing with climate 
issues for centuries. And they learn, they adjust, and they do 
their own internal risk analysis for that. And that is what we 
should rely on.
    We have a supervisory framework to judge how much risk is 
out there once they make the loan and how the loan performs. 
That is the best----
    Mr. Vargas. But you think it is real?
    Mr. Hoenig. Pardon me?
    Mr. Vargas. You think it is real?
    Mr. Hoenig. I think it is a real issue for this country and 
the world, yes. It is a real issue.
    Mr. Vargas. Okay. That was my question. Thank you.
    Professor Skinner?
    Ms. Skinner. Thank you for the question.
    Mr. Vargas. Of course.
    Ms. Skinner. I believe it is important to study climate 
change. However, one can separate the question of the 
scientific basis and evolution of climate change from the 
question of whether it is appropriate for our U.S. financial 
regulators to proactively attempt to mitigate climate change 
using their supervisory tools with the existing mandates that 
they have.
    Mr. Vargas. Fair enough. Do you believe in it?
    Ms. Skinner. I believe that climate change is an important 
issue for society to wrestle with.
    Mr. Vargas. Okay.
    Ms. Marcellin?
    Ms. Marcellin. Yes. Thank you for the question, Congressman 
Vargas.
    Yes, absolutely, I believe that climate change is a real 
phenomenon--we have people other than the banking regulators; 
we have scientists, we have other areas of government that have 
studied this extensively. And I do think they have access to 
this information, our banking regulators, as do we, and can 
then use that information to assess how much of that flows into 
the financial system and the risk it causes, which then falls 
into their safety and soundness mandate.
    Mr. Vargas. Okay.
    The question took a little bit longer than I thought. I 
thought that was going to be a pretty simple question, but it 
turns out to be a little more complicated for some. Not for me. 
I, obviously, think there is climate change. And I find it 
interesting that some wouldn't even comment on it.
    But I do have concerns about Basel III because of what Mr. 
Scott was talking about, first-time homebuyers and the ability 
to get a mortgage for people who have worked hard, saved up 
their money, and now are not going to be able to get a loan.
    Would someone like to comment on that, who hasn't commented 
on that?
    Mr. Hoenig, I don't believe you have commented on that. Why 
don't you comment on that, sir?
    Mr. Hoenig. I don't know that they won't be able to get a 
loan. It depends on----
    Mr. Vargas. But I am asking, will it make it more 
difficult? That is the issue.
    Mr. Hoenig. Basel III Endgame?
    Mr. Vargas. Correct.
    Mr. Hoenig. It is not clear, because some of the proposals 
in the Endgame favor mortgages for some and----
    Mr. Vargas. Okay. So, you don't think it is clear.
    Professor Skinner, I see you are anxious to answer this 
question.
    Ms. Skinner. I think it is unclear, because there hasn't 
been a meaningful cost-benefit analysis.
    But I think your question invites commentary on shifts in 
market structure that can be expected, although we won't know 
the full extent of it yet. However, I do think a lot of lending 
will go to different corners of the financial system. And 
maybe, that will be good for first-time borrowers, and maybe, 
it will be bad.
    But this is a prime example of where we can know that there 
will be costs and unintended consequences from these higher 
capital charges.
    Mr. Vargas. Ms. Marcellin, I apologize. You have only a few 
seconds. Go ahead.
    Ms. Marcellin. I also want to emphasize that the majority 
of mortgage loans, especially to Black and Brown communities, 
are securitized by Fannie Mae and Freddie Mac, and they are not 
subject to the increased capital requirements.
    Mr. Vargas. Thank you.
    Thank you, Mr. Chairman.
    Chairman Barr. The gentleman's time has expired.
    The gentleman from South Carolina, Mr. Timmons, is 
recognized.
    Mr. Timmons. Thank you, Mr. Chairman.
    In recent years, the question of whether U.S. banking 
regulators such as the Fed should actively encourage banks to 
shift away from traditional assets and embrace green 
investments has been gaining traction. We have even begun to 
see regulators slowly but surely taking a more active role in 
this space, implementing overly-burdensome climate policies 
across our financial sector. Yet, it is important to recognize 
that these agencies lack a formal mandate to encourage or 
promote any form of transition to, ``green practices.''
    Earlier this year, Chairman Powell acknowledged the Fed has 
a narrow role to play in climate policy and stated that, 
``Addressing climate change seems likely to require policies 
that would have significant distributional and other effects on 
companies, industries, regions, and nations. Decisions about 
policies to directly address climate change should be made by 
the elected branches of government and, thus, reflect the 
public's will as expressed through elections.''
    Following recommendations of the FSOC and international 
global governance organizations, the Federal Reserve, along 
with other Federal banking agencies, proposed guidance to 
financial firms on purported climate-related financial risks. 
Part of that is for the regulators to check whether banks are 
prepared for the risks of, ``the transition,'' which could 
involve, in the minds of some, the elimination of the use of 
fossil fuels. Similar operational risks are more heavily 
weighted in the proposed Basel III Endgame, representing 
indirect climate-focused policymaking.
    Ms. Skinner, what risks do you anticipate as a result of 
Federal banking regulators following the lead of outside 
international think tanks and climate policy activists in 
efforts to pressure financial institutions into green policy 
initiatives?
    Ms. Skinner. There are a couple of risks. For one, there 
are risks to distorting the economy, to pressuring banks to 
make decisions about who wins and who loses--green sectors 
winning, brown sectors losing--that ultimately distort lending 
and, frankly, transition policies over the longer term.
    There are risks to the institutional legitimacy of the 
Federal Reserve. The more that the central bank, in particular, 
weighs into these politically-contested value judgments, the 
less support there will be for its overall independence.
    And certainly, there are problems you flag with the 
constitutional design of the FSOC itself. The FSOC is part of 
the Executive Branch, and, according to the separation of 
powers, it should not be directing the agencies what to do or 
which institutions to put within a regulatory perimeter. That 
should be for Congress.
    Mr. Timmons. Do you think the Fed has already overstepped 
its narrow jurisdiction?
    Ms. Skinner. Not yet, but I do think there is a risk for 
climate mission creep in regard to its supervisory functions, 
because its supervisory mandate is the least well-defined. 
Safety and soundness, financial stability--these don't have 
concrete definitions. And its tools, like stress testing and 
supervision, are, themselves, very opaque and not subject to 
judicial review.
    Mr. Timmons. One of these international governance groups 
is the Network for Greening the Financial System (NGFS), a 
group of over 80 central banks, including the Fed, which are 
focused on climate-related risks. The NGFS contends that it is 
imperative to assess, track, and regulate these risks, which, 
in turn, can influence resource distribution and the allocation 
of credit.
    Ms. Skinner, do you believe that there is a high risk of 
increasing pressure from the NGFS and other international 
bodies to get U.S. banking regulators to increase their active 
climate policymaking role?
    Ms. Skinner. I do believe there is that risk. Other 
jurisdictions seem much keener to use regulatory and 
supervisory tools to pressure their banks in that way.
    And I do think the United States is facing pressure 
internationally to use supervision, moral suasion, to pressure 
banks to veer away from brown assets and toward so-called green 
borrowers and against collateral that is green.
    Mr. Timmons. Thank you for that.
    NGFS also allows external financing for its projects, 
models, and work on data, including from environmental 
activists and pass-through funding groups with ties to very 
liberal individuals and groups.
    Mr. Bashur, given such a funding structure, and given that 
staff from the Federal Reserve System, the FDIC, and the OCC 
have engaged in workgroups and other work with the NGFS, would 
you agree that there could be, at the very least, the 
appearance of a conflict of interest?
    Mr. Bashur. I think it is very possible.
    I know that the Financial Stability Board, for example, 
created the Task Force on Climate-Related Financial 
Disclosures, which is chaired by Michael Bloomberg, and they 
use each other's peer reviews. So, I think that if they are 
interconnected that way in their process, I definitely think 
there is potential that their funding sources could be as well.
    Mr. Timmons. Thank you.
    Mr. Chairman, I yield back.
    Chairman Barr. The gentleman yields back.
    The gentleman from Illinois, Mr. Casten, is recognized.
    Mr. Casten. Thank you, Chairman Barr. And thanks to our 
witnesses.
    I want to follow up on a couple of questions that have been 
asked by my colleagues, first with Ms. Marcellin, and then with 
Mr. Bashur.
    Ms. Marcellin, you had this conversation with Mr. Sherman 
about tax equity, and I want to just put a little bit of a 
finer point on this.
    Under the proposed Basel rules, at present, if banks invest 
in tax equity, it has a 100-percent risk weight unless it is 
more than 10 percent of their capital; then, it bumps up to 400 
percent. Under the proposed new rules, some classes of tax 
equity would go to 400 percent regardless of the level and some 
wouldn't. For example, tax equity in community housing still 
stays under the old rule; tax equity used for clean energy goes 
to the new rule.
    Is it your opinion that there is--and, to be clear, I 
support robust bank capital standards--a difference in the risk 
profile of these different classes of tax equity that matches 
with the differential treatment under the new Basel rules?
    Ms. Marcellin. Thank you for that question, Congressman.
    I have to say that I defer to the regulators, and they are 
in the best position to determine the specific risk weights to 
the various risk profiles of these asset classes.
    The one thing I will say is that Congress did give a 
statutory okay, explicit statutory okay, to give preferential 
treatment to housing and low-income community-development 
programs----
    Mr. Casten. Sure. And I am not suggesting that we reduce 
that in any way.
    Ms. Marcellin. Yes.
    Mr. Casten. I am just making the point that the idea of 
these capital ratios is that risk should follow.
    Ms. Marcellin. Yes.
    Mr. Casten. And if we don't have an affirmative sense that 
there is a risk difference, it shouldn't be priced differently.
    Ms. Marcellin. Yes. The only thing to add to that, and, 
again, I, too, support the goal to move to clean, renewable 
climate projects. I completely understand the concern there.
    As you mentioned, just weighting the risk between publicly-
traded equity and non-publicly-traded equity, and that is where 
the tax equity financing falls under----
    Mr. Casten. Okay. And I am sorry to be brief, but I do want 
to get to Mr. Bashur.
    But do you think that, in a final rule, Federal regulators 
could find a solution that maintains robust capital standards 
but still doesn't limit our ability to realize the goals of the 
Inflation Reduction Act and doesn't differentially risk-weight 
things that have comparable risks?
    Ms. Marcellin. Yes, they absolutely can find a way to do 
both. And I would be happy to work with you to do so.
    Mr. Casten. Terrific. Thanks for that.
    Mr. Bashur, in the exchange you had with Mr. Vargas, I 
understand Americans for Tax Reform does not take a position on 
the science of climate. I suspect you also don't take a 
position on the nature of communicable disease, but I am sure 
you like when your town invests in clean water.
    So, I want to just talk a little bit about the science to 
make sure we are in agreement. Do you know what the current 
level of CO2 is in the atmosphere?
    Mr. Bashur. No, I am not aware.
    Mr. Casten. Okay. It is about 421 parts per million. When I 
was born, it was 326, so it has grown by 30 percent just in my 
lifetime. I am a little older than you. But since 1993--50 
percent of all the CO2 that humans have ever omitted into the 
atmosphere is since 1993.
    Are you familiar with a guy named Svante Arrhenius? Have 
you ever heard of him? He was an 1800's scientist, and he 
explained what happens if you increase fossil fuel consumption. 
And what he predicted in 1886 is essentially exactly where we 
are. It is also, by the way, where Exxon scientists predicted 
we were going to end up about 30 years ago.
    Are you familiar with carbon-12, carbon-13 isotopes, and 
the differential way that photosynthesis works?
    Mr. Bashur. No, I am not.
    Mr. Casten. Okay. Plants like carbon-12 better. And fossil 
fuels that are plant-derived have more carbon-12 in them. And, 
in fact, we can see that, in the ice core samples, 
overwhelmingly, the recent CO2 emissions are from the 
combustion of fossil fuels. The science is with us. You don't 
need to be a scientist to know this. I am not a climate 
scientist. But it is directly contributing to what all is going 
on there.
    Do you believe climate change poses a major risk to the 
stability of the U.S. financial system?
    Mr. Bashur. We oppose the government's intervention----
    Mr. Casten. Just a yes or no, do you agree with that 
statement?
    Mr. Bashur. We oppose the government intervening----
    Mr. Casten. I am not asking what your opinion is on what 
the government should do. Do you agree that climate change 
poses a major risk to the financial system? Because that was 
what the Trump Administration said.
    Mr. Bashur. The Trump Administration can say that. Our 
opinion is that the government should not be----
    Mr. Casten. Okay. I am not asking you for your Ayn Rand 
politics.
    The Trump Administration predicted that banks were going to 
start offloading risk to less-sophisticated players in coastal 
properties. That is now happening. Insurers are leaving these 
areas. Appalachia is collapsing because the coal country can't 
produce a product that markets want, which is causing huge 
flights of capital.
    So my last question is, do you agree that the Financial 
Stability Oversight Council has the authority to oversee the 
financial stability of the U.S. economy?
    Mr. Bashur. They were established in Dodd-Frank and have 
been given certain authorities. But I think, with the recent 
guidance that they issued on nonbank systemically important 
financial institutions (SIFIs)----
    Mr. Casten. Look, we are out of time. You have political 
opinions. Science is real. Capital really is moving, and we 
have a job to do.
    Chairman Barr. The gentleman's time has expired. And I am 
glad the gentleman and I agree that the Appalachian economy has 
collapsed.
    The gentleman from Wisconsin, Mr. Fitzgerald, is now 
recognized.
    Mr. Fitzgerald. Thank you, Mr. Chairman.
    This is a fascinating hearing--people with no science 
expertise asking questions of people who have no opinion on any 
of these scientific questions. I don't know how we devolved to 
this point.
    We have discussed quite a bit about how the Basel proposal 
adopts legally-binding capital requirements originating from an 
organization that exhibits no legal authority in the United 
States, yet the Federal Reserve and other financial regulators 
have the power to adopt these standards without any input from 
Congress.
    Mr. Bashur, the Federal Reserve's independence is certainly 
important for monetary policy decisions, but should Congress be 
looking at restricting some of their power when it comes to 
bank supervision, especially in light of regulatory failures 
over Silicon Valley Bank, Signature Bank, and some of the 
others?
    Mr. Bashur. Congress needs to rein in the U.S. regulators.
    I think that, with regard to Silicon Valley Bank, that 
bank's foibles should not be attributed to the entire banking 
sector, especially with their deposit concentration within one 
specific sector.
    But this is a great opportunity for Congress to take the 
reins. I think that the time is now. And I think that the U.S. 
regulators have decided that they have full discretion to do 
whatever they want, but they don't. First National Bank of 
Bellaire v. OCC from 1983 explicitly says that.
    So, I think this is a great opportunity for you all to get 
involved.
    Mr. Fitzgerald. Very good.
    The European Parliament's Committee on Economic and 
Monetary Affairs voted 41-14 to exclude the most-egregious of 
the Basel III capital standards from its implementation of 
further reforms to EU members' banking systems.
    Ms. Skinner, what were the EU's concerns on the 
implementation? I know that is a big question to try and 
answer.
    Ms. Skinner. The big picture is that the EU is concerned 
about the competitiveness of its banks and, sort of ancillary 
to that, the competitiveness of its Capital Markets Union. And 
it wants to be careful not to hamstring its ability to remain 
competitive, and so it looks at the Basel III regime and sees 
that certain aspects of it are not likely to serve its 
interests, and so it voted it down.
    That really should be the process that the United States 
follows. And I think that what is going on with the Basel 
Endgame is that U.S. regulators are using it as an opportunity 
to sort of pursue their vision of installing a perfect, 
airtight level for the financial stability risks that they 
predict. And, of course, there is no such thing as the perfect 
levy, and there are tremendous costs to trying to do that with 
capital, which they haven't acknowledged.
    Mr. Fitzgerald. Right.
    And shouldn't their reluctance give the U.S. regulators 
cause for concern about disadvantaging U.S. financial 
institutions overall?
    Ms. Skinner. Absolutely. The competitiveness of our banking 
system, of our global correspondent banking system, and our 
capital markets is a major national asset, and that should very 
much be something that the U.S. regulators are concerned with 
hamstringing.
    Mr. Fitzgerald. I want to ask you one more question, but 
let me preface--the Basel Committee uses a Regulatory Capital 
Assessment Program, right, to determine whether a jurisdiction 
is compliant with a particular Basel standard itself. The 
problem is that the measurement focuses so narrowly on 
technical adoption of specific requirements rather than some of 
the capital levels involved.
    Aspects of U.S. rules that are similar are not considered 
in that assessment. I think that is correct.
    Wouldn't a better approach be to focus on overall capital 
levels, rather than a narrow technical assessment?
    Ms. Skinner. A better approach, given that Basel is not a 
treaty-based organization, it is not any source of formal 
international law, would be to take a very high-level peer 
review, to the extent that it is done at all, and to see if the 
spirit of the direction of travel is being complied with, 
provided, again, that any U.S. instantiation of the Basel 
principles also comports with U.S. law.
    In fact, as you point out, the peer review looks very 
specifically for implementation that has a very high degree of 
enforceability.
    Mr. Fitzgerald. Basel-compliant appears to create kind of 
an unnecessary redundancy within the U.S. capital rules. How 
would the U.S. regulators weigh compliance with this 
international standard when they are proposing a rule in the 
United States?
    Ms. Skinner. In the case of the Endgame, for example, if 
that was something that Basel was reviewing, the U.S. would be 
super-compliant. And in many aspects of Basel, the U.S. is 
either exactly compliant or super-compliant.
    And I think it is important to tease out two different ways 
that Basel can influence what is happening in the United 
States. One way is the strand of the conversation that we have 
been having with climate--
    Chairman Barr. The time has expired.
    Mr. Fitzgerald. Thank you. I yield back.
    Chairman Barr. The time has expired. I'm sorry.
    The gentlewoman from California, Mrs. Kim, is now 
recognized.
    Mrs. Kim. Thank you, Mr. Chairman.
    I want to thank our witnesses for being with us today.
    I am deeply concerned that the Basel III Endgame and the 
other proposals will make credit more expensive for small 
businesses, reduce lending for low- to moderate-income 
households, and put our banks at an international competitive 
disadvantage.
    Furthermore, it has been reported that certain European 
countries want their carve-outs on their own Basel III Endgame 
proposals to protect their banks from the increased cost of 
higher capital requirements.
    And, unfortunately, here, the SVB failure is being used as 
a red herring to increase capital requirements by as much as 16 
percent. And we know that SVB's failure was largely due to bank 
mismanagement and an old-fashioned bank run that was enabled by 
new technologies and supervisory failings at the Fed and the 
California Department of Financial Protection.
    Professor Skinner, the one reason for an internationally-
harmonized capital standard is the establishment of a level 
playing field for competition among banks from different 
countries. And this is often cited for requiring U.S. banks to 
comply with Basel III Endgame.
    However, isn't there a difference between international 
harmonization and Basel compliance? And are there other 
jurisdictions adopting standards that are comparable to either 
the U.S. or Basel?
    Ms. Skinner. Thank you for the question.
    In much of the history of the Basel Accords, the U.S. has 
complied or gone further, so I think you raise a really 
important question, which is, why now is the U.S.--I think a 
better phrase would be, ``platinum-plating,'' the Basel 
standards?
    Because there stands to be, if the rule is implemented as 
it has been proposed, quite a discrepancy, in particular with 
regard to loans to corporates, between Europe and the United 
States.
    Mrs. Kim. It seems to me that the Basel III Endgame will 
make regulations more centralized and move us away from a 
market-based system to more of a utility system.
    In your conclusion, you alluded that there was an attempt 
to remodel the U.S. financial and banking structure as a public 
utility. Can you tell the committee what that type of U.S. 
economy will look like or what we can expect if the banks make 
business decisions like utility companies?
    Ms. Skinner. It will look more like a centrally-planned 
economy. And that is essentially a vision that many academics 
who have influence with regulators believe is the correct 
vision for banking market structure in the United States--one 
that is much more centrally directed by regulators' opinion of 
what is or is not a credit risk, and essentially using banks as 
mechanisms for allocating capital toward more-preferred or away 
from less-preferred sectors in the economy, rather than letting 
banks make their own decisions about risk.
    Mrs. Kim. How is our financial and banking system different 
than other countries, for example, in the European Union or in 
Asia?
    Ms. Skinner. One key way that our banking system is 
different is that we have what is known as a three-tiered 
model, where we have community banks, regional banks, and large 
banks. And that is considered to be a major strength of our 
banking system, because the banking system is able to lend to 
many different pockets of the U.S. economy and serve many 
different risk profiles, which overall makes the financial 
system more resilient.
    And the concern with Basel III is that we may devolve to a 
two-tiered model, with very large banks that can stomach the 
cost of these additional regulations, and community banks, 
which are exempt.
    Mrs. Kim. Thank you. My sense is that countries in those 
regions are influencing the Basel Committee to enact standards 
that look more like their own standards rather than our 
American standards.
    Mr. Bashur, let me ask you the last question. Fed Vice 
Chair Barr claims that the proposed rules only apply to the 
largest banks, with over $100 billion in assets. But in your 
written testimony, you mentioned that the negative implications 
can trickle down to smaller community banks.
    Can you elaborate on your own written testimony to that 
effect?
    Mr. Bashur. For the market risk component, that is one of 
the exceptions, in that if a bank has trading assets and 
liabilities of more than $5 billion, then it would apply to 
them regardless of whether or not they had more than $100 
billion in total consolidated assets.
    And I think, with regard to consumer products, such as the 
effect on credit cards, what a lot of folks don't understand is 
that a lot of the community banks that are out there actually 
use larger banks to be able to issue those cards. So, I think 
the effect will end up trickling down, even though it is framed 
as applying to only some of the largest banks.
    Mrs. Kim. Thank you.
    Chairman Barr. The gentlelady's time has expired. The 
gentleman from Texas, Mr. Green, is now recognized.
    Mr. Green. Thank you very much.
    And I would like to thank the witnesses for being here 
today.
    And, Mr. Chairman, I would like to thank you for presenting 
a panel that looks more like America. I have been critical in 
the past, and I want to compliment you for the optics. We do 
have gender balance.
    And I would like to compliment the Democratic staff, 
because we tend to balance when it comes to ethnicity.
    So, Mr. Chairman, I hope that this is taken in the spirit 
that it is given. It is not enough for things to be right; they 
must also look right. And this looks a lot better than some of 
our all-White panels that we have had. Thank you, sir.
    Now, with that said, Ms. Marcellin--and if I am not 
enunciating properly, please let me know.
    Ms. Marcellin. That is perfect, yes.
    Mr. Green. Okay. Thank you.
    U.S. regulators, are they not a part of the international 
organization that we have come to know as Basel?
    Ms. Marcellin. Yes, they are.
    Mr. Green. And do they have a fair amount of influence when 
decisions are being made, or are they excluded from the 
decisions? They deliberate, but they don't have a voice when it 
comes to making decisions?
    Ms. Marcellin. Thank you for that question.
    The Federal Reserve is the largest and most-powerful 
central bank in the world. When the Federal Reserve speaks, 
people tend to listen. The idea that they are, as someone said 
before, a standard-taker and not a standard-maker on this 
global body is, I would say, a very creative view.
    Not to mention, unlike other countries, who have one or two 
of their prudential regulators on the Basel Committee on 
Banking Supervision (BCBS), the United States has the Fed, the 
OCC, the FDIC, and the New York Fed, so we have a very large 
amount of influence on this body.
    Mr. Green. Perhaps, it is the name that confounds and 
confuses. Perhaps, if it were called the, ``U.S. Committee,'' 
we could embrace it with a greater degree of alacrity. But, be 
that as it may, let's continue.
    There is this notion that we don't need any additional 
capital for our banks. Can you give us a discussion, just 
briefly, if you would, on the downward trends in capital for 
the G-SIBS that you have seen since 2017?
    Ms. Marcellin. Yes. Thank you for that.
    With the advent of the pandemic, there was a lot of--
obviously, to mitigate the crisis, regulators stepped into gear 
and did emergency measures, which put a downward pressure, as 
detailed by the Kansas Fed, on capital ratios, and even lower 
if you look at just the supplemental leverage ratio.
    Not to mention the Fed also excluded Treasury securities 
from being counted as part of the denominator for the Statutory 
Liquidity Ration (SLR). That rule has expired, and, yes, we are 
seeing a trend of capital rising a bit at the largest banks. 
However, as academics have pointed out, including right-wing 
academics as well, the Mercatus Center and others, that we are 
nowhere close to the optimal levels of capital.
    If we look at the Tier 1 risk-weighted ratio, the optimal 
level for that is estimated to be around 23 percent, and right 
now, we are looking at about 14 percent for the average for the 
largest banks.
    Mr. Green. Thank you.
    The final question has to do with their performance. Have 
you found that banks that are better capitalized have a better 
performance record than those that are less capitalized? Or are 
they about the same?
    Ms. Marcellin. Yes, thank you. I would defer to people that 
I consider much smarter than myself, including the Bank of 
International Settlements. Like I said, many regulators, and 
many academics, as well, have shown time and time again that 
banks--even if we look back to the financial crisis, before the 
financial crisis, banks that were better capitalized were able 
to deploy their capital and deploy sources of funding to an 
economy that was being restricted.
    And we saw it even in 2009 when the Fed went and 
implemented stress tests, and what was it, 11 out of 19 banks 
failed? And then they actually went and required them to access 
Troubled Asset Relief Program (TARP) funding, which then 
started the U.S. banks having a more resilient system than the 
European banks, which took a longer time to recover from the 
global financial crisis.
    Mr. Green. Thank you.
    And, Mr. Chairman, I yield back.
    Chairman Barr. The gentleman yields back.
    The gentlewoman from Texas, Ms. De La Cruz, is now 
recognized.
    Ms. De La Cruz. Thank you, Mr. Chairman, for holding this 
important hearing today.
    And thank you to the witnesses for being here.
    Mr. Bashur, what control does the United States have over 
the Bank for International Settlements, the Basel Committee on 
Banking Supervision, or the Network of Central Banks and 
Supervisors for Greening the Financial System?
    Mr. Bashur. The U.S. regulators are--the Federal Reserve is 
a member of the Basel Committee on Banking Supervision. In 
terms of control, it is unclear exactly what that would be, 
necessarily, just because their members have these meetings, 
and they go through these different frameworks, but again, it 
is very opaque, and we are not entirely sure what is actually 
discussed in those meetings.
    Ms. De La Cruz. So, being the House of Representatives and 
our responsibility being oversight, do we have access to what 
is discussed in these meetings and what thoughts are 
collaborated and perhaps influencing our banking system?
    Mr. Bashur. I am sure that those minutes are somewhere, but 
they are not available to the public, and I think that they 
should be.
    Given that the current rule that has been issued--and the 
comment period closes mid-January--given that it is outstanding 
right now and the magnitude of it, I think that the public and 
the elected Representatives of the American citizens should be 
able to at least see what was discussed, which members were 
wanting what provisions, and how they came to those 
conclusions.
    The Executive Branch does not make the laws. You all do.
    Ms. De La Cruz. How do we know if they are actually working 
in the best interests of American citizens and small-business 
owners?
    Mr. Bashur. We are not entirely sure. I think, again, it is 
all this opaqueness that has been allowed to go on for years 
now since the first Basel Accord was adopted in 1988. It has 
been allowed to go on for a long time. And I think that it is 
great that we are having this hearing to shed light on it.
    Ms. De La Cruz. So, ultimately, what I am hearing is that 
there is no oversight by Congress, that we don't know if they 
are even working in the best interests of the American 
citizens, and, quite frankly, we have international bureaucrats 
that are implementing policies that we just don't know how they 
affect Americans. Is that correct?
    Mr. Bashur. That is correct. I think that the rule, as it 
exists now, is an example of what the regulators have decided 
they want to do, what they believe is their unbridled 
discretion--which, again, they do not have unbridled 
discretion, but they, for whatever reason, believe they do. And 
they just--it is hubris, frankly. I think it is a lot of 
hubris, that they believe they know what is best for the 
system, when, in fact, they forget that they have not been 
elected.
    Ms. De La Cruz. No, they have not been elected. And they 
don't have any oversight from Congress, which is unacceptable.
    Ms. Skinner, I know you have written about central bank 
activism. What reasons have you found in your research for why 
Federal banking agencies are becoming more activist in nature?
    Ms. Skinner. Thank you. I think the primary reason is that 
there is a perception internationally and among some segments 
of the public that central banks should tackle more and more 
areas of economic importance. There are a lot of areas that are 
important to the economy, and most of them don't fall within 
the jurisdiction of the Fed.
    And so, for those that are dissatisfied with Congress, who 
would like to see more legislation in a particular direction, 
central banks, their balance sheets, their supervisory tools 
can be very attractive to try and capture and direct toward a 
particular policy outcome that they would prefer.
    So, effectively, central banks are being pressured, and are 
sometimes volunteering to do it themselves, to be more 
activist, essentially to get around their mandates and 
accomplish things in the economy that they can't otherwise do 
within the four corners of their mandate.
    Ms. De La Cruz. And what does this mean for the American 
people?
    Ms. Skinner. It means that the American people will 
ultimately have less input into what their economy, what their 
society, what their political system looks like, which is why, 
when we refer to the fact that central bankers are unelected, 
what that effectively means is that they can't be wading into 
these waters and making these subjective value judgments that 
we reserve for our democratically-responsive institutions. 
Because central banks are not democratically-responsive 
institutions.
    Ms. De La Cruz. Thank you.
    I yield back.
    Chairman Barr. The gentlelady yields back.
    The gentleman from Tennessee, Mr. Ogles, is now recognized.
    Mr. Ogles. Thank you, Mr. Chairman.
    And thank you all for being here.
    Mr. Chairman, in regards to the Appalachian community, 
there has been a hardship on Appalachia. When you look at the 3 
major basins in Appalachia, in 2005, they produced almost 400 
million short tons of coal, and because of overregulation due 
to Environmental, Social, and Governance (ESG), that is down 65 
percent, or a little over 65 percent, to just over 100 million 
short tons of coal. This has had a negative impact on that 
region, on our economy.
    And the science is real. The science is that the United 
States of America produces the cleanest energy in the world, 
whether it is oil, whether it is gas, or whether it is coal.
    So, if their agenda was truly to fix the economy, to truly 
fix the environment, they would focus on making us energy-
independent again. And having this kind of rhetoric come out of 
this committee is nonsense.
    I will get back on point, Mr. Chairman, and I thank you for 
your indulgence.
    We are talking about the Basel III Endgame, and you look at 
the international standards and the compliance thereof, we have 
a dynamic banking system, as you stated, a three-tiered system. 
And with our push to comply with the European standards, in 
essence, a more rigid standard, a less dynamic standard, I see 
a world in which a foreign actor, such as China or Russia, 
could try to leverage those standards that would have a 
negative impact on the United States while leaving their 
systems unharmed, or they, quite frankly, have no intent on 
complying.
    And because these are international standards, you have a 
world where China is politically moving against Taiwan, so they 
have a reason to want to undermine our economy. You have a 
world in which Russia is attacking Ukraine, so they have an 
obligation to their people to try to undermine the United 
States so they can leverage that in their own negotiations for 
territory in Ukraine. You now have the conflict in Israel, a 
global conflict, where Russia and China seemingly are on a 
different page than the United States of America and Israel.
    So, Mr. Bashur, is there a scenario where Russia could use 
standards to negatively impact the United States of America 
while leaving themselves unharmed, yes or no?
    Mr. Bashur. It could definitely be a possibility. And I 
think that is why we need the legislation that has currently 
been presented to be enacted, so that we can see if that is 
actually occurring.
    Mr. Ogles. Mr. Hoenig?
    Mr. Hoenig. I think it is a risk in the following sense: 
that we agree to these standards, the U.S. complies, and they 
do not, it favors them and it handicaps us in a relative global 
situation.
    Mr. Ogles. Which, to your point, would be self-inflicted on 
our part.
    Mr. Hoenig. Self-inflicted. And that is why I don't like 
the Basel standards, period.
    Mr. Ogles. Right.
    Ms. Skinner?
    Ms. Skinner. Other jurisdictions certainly seem to be 
mindful of their own competitive position. And, again, we can't 
know what their objectives are for the United States, because 
we don't know what their negotiating aims are or who are the 
people participating.
    Mr. Ogles. And to your point in your previous testimony, we 
have seen where the European Union has actively pushed back on 
regulations that would have a negative impact on their economy 
or their banking system. Meanwhile, we tend to go over and 
beyond a system that is literally working against our banking.
    Is that a fair assessment?
    Ms. Skinner. That is a fair assessment, yes.
    Mr. Ogles. Yes, ma'am.
    Now, going back to China, which is really--I have a bone to 
pick with China. I tend to be one of the more vocal folks, 
along with some of my fellow colleagues on this committee, 
against China. I think they are the existential threat to the 
United States of America, whether it is from a military 
standpoint, or whether it is from an economic standpoint. We 
know that they are working with a Mexican cartel. We know that 
they are flooding our streets and our children with fentanyl.
    Is there--the same question, Mr. Bashur--a scenario where 
China could undermine the United States of America, whether it 
is through green initiatives, clean initiatives, et cetera, 
meanwhile they are one of the larger polluters in the world--
that they could try to undermine the United States of America, 
while leaving themselves unharmed?
    Mr. Bashur. If their goal is to increase regulation and 
hamper our banking system, then I think with this rule that 
they have--to the extent that they have weighed in on this--
which apparently they have if they are members--then, I think 
they have succeeded in trying to do that.
    Mr. Ogles. Mr. Hoenig?
    Mr. Hoenig. I think, to the extent, for example, that they 
agree and, shall we say, negotiate hard for green-energy rules 
that then they ignore and ship their dirty environment to us, 
yes, I think that undermines the United States.
    Mr. Ogles. Ms. Skinner?
    Ms. Skinner. Yes. If we look at how China has behaved in 
other contexts, such as economic cyber espionage, then there is 
reason to think that there is a risk that they would use other 
opportunities to undermine the U.S. economic interests as well.
    Mr. Ogles. Mr. Chairman, I would just close by saying that 
both Russia and China have proven to be foreign actors, bad 
actors, who try to undermine the United States of America. And 
our participation in Basel III is ludicrous, and the fact that 
we are complying with countries that are trying to undermine us 
is a fool's errand.
    Mr. Chairman, I yield back, and I thank you.
    Chairman Barr. The gentleman yields back.
    And I would like to thank our witnesses for their excellent 
testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    I ask our witnesses to please respond as promptly as you 
can.
    This hearing is now adjourned.
    [Whereupon, at 12:14 p.m., the hearing was adjourned.]

                            A P P E N D I X

                            November 7, 2023
                            
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