Barr Speech on the Basel Endgame: Many Comments Unaddressed
On September 10, 2024, Federal Reserve Vice Chair for Supervision Michael Barr gave a speech (the Barr Speech) in which he outlined the principal changes that he would recommend to the full Board of Governors in a re-proposed rule to implement the Basel Endgame (the Re-Proposal).
The Basel Endgame would overhaul the methods by which large banking organizations must calculate risk-based capital requirements. The original proposal drew an unprecedented amount of criticism — more than 97% of the 356 commenters whose letters we deemed material when we analyzed the public comment record earlier this year opposed the proposal in full or raised substantial concerns with it in part.
The Barr Speech omitted many important areas where a broad range of commenters had expressed criticism. In this report, we discuss those public comments that Vice Chair Barr did address, and those that he addressed only partially, or not at all, including:
- the overall effects of the proposal on the economy as well as capital markets activities;
- the fact that the US banking industry is already well capitalized, both as an objective matter and in comparison to global banks of the same size and complexity;
- the fact that the proposal does not take account of the Federal Reserve’s annual CCAR stress tests;
- adverse effects on minority groups and underrepresented communities;
- adverse effects of the market risk capital rule (FRTB);
- the proposal’s approach to CVA risk for derivatives transactions;
- criteria for investment-grade risk weighting;
- treatment of securitizations;
- adverse effects of calculation of the G-SIB surcharge;
- legal and process issues in the rulemaking; and
- congressional concerns.