SENATE BANKING COMMITTEE HEARING
OVERVIEW
On July 9, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “The Semiannual Monetary Policy Report to the Congress.” The witness in the hearing was:
- The Honorable Jerome H. Powell, Chair, Board of Governors of the Federal Reserve System
Below is a summary of the hearing prepared by Delta Strategy Group. It includes several high-level takeaways, followed by summaries of opening statements and a summary of all proposed amendments.
Key Takeaways
The following is a summary of some of the topics explored in today’s hearing. Each is discussed in further detail in the Discussion section below.
- The hearing focused on the Fed’s commitment to lowering inflation to the 2 percent target, addressing labor market conditions, including labor shortages and wage trends, and discussing the potential reproposal of the Basel III Endgame reforms.
SUMMARY
Opening Statements and Testimony
Chairman Sherrod Brown (D-OH)
Every month that the Fed keeps rates high, it cost Americans money by making it more expensive to buy a house and to borrow money. Higher borrowing costs stifle future economic growth leading to fewer homes being built, leading to fewer businesses making investments in the economy, and essentially if the Fed does not stop, workers will lose their jobs.
Ranking Member Tim Scott (R-SC)
Basel III would cost millions of Americans their chance to own a home, start a small business, and have access to the credit and capital necessary to make their American dreams come true. These proposed capital requirements would force more money to the sidelines of the greatest economy on the planet. We need transparency in the rulemaking process as this proposal lacks any form of clear justification. It is necessary to have a complete reproposal of Basel III Endgame.
The Honorable Jerome H. Powell Chair, Board of Governors of the Federal Reserve System
The Fed is focused on our mandate to promote maximum employment and stabilize prices for the benefit of the American people. Over the past two years, the economy has made considerable progress toward the Federal Reserve’s 2 percent inflation goal, and labor market conditions have cooled while remaining strong. Recent indicators suggest that the U.S. economy continues to expand at a solid pace. Gross domestic product growth appears to have moderated in the first half of this year following impressive strength in the second half of last year. We have also seen moderate growth in capital spending and residential investment so far this year. Inflation has eased notably over the past couple of years but remains above the Committee’s longer-run goal of 2 percent. After a lack of progress toward our 2 percent inflation objective in the early part of this year, the most recent monthly readings have shown modest further progress.
Discussion
Tim Scott (R-SC): Will you commit to withdrawing the existing Basel III proposal? Powell: We do need to put a revised proposal out for comment for some period. When there are broad material changes, that has been our practice and we do not deviate from that practice.
Tim Scott (R-SC): How will the Fed revise or reissue the Basel III proposal before receiving public comments? Powell: When we do reach agreement with the other agencies fully, we will publish the proposed changes, the quantitative impact study (QIS), and the effects the changes would have.
Tim Scott (R-SC): How long do you see that opportunity for public comments? Powell: It might be 60 days. It does not need to be long.
Mike Rounds (R-SD): Since there will be significant changes to Basel III, do you believe where the agencies have landed now would be considered a logical outgrowth of the original proposal from last summer? Powell: It will be appropriate for us to put out the changes again for a period of comment just because it is the right thing to do.
Mike Rounds (R-SD): Would it be fair to say that we will be looking at the determinations and recommendations for a Basel III Endgame end of next year? Powell: Something like that could be right, but it is hard to be precise. The end of next year is a good estimate.
Thom Tillis (R-NC): Can I get a commitment from you on releasing the QIS of Basel III Endgame? Powell: We plan on releasing the QIS.
Thom Tillis (R-NC): What is the time frame for changes to Basel III? Powell: First, we have to agree with the other banking agencies, then as soon as possible.
Mark R. Warner (D-VA): Are you looking at revision of liquidity standards of Basel III? Powell: There seems to be a need to update assumptions about liquidity and that is a separate proposal we are working on.
Katie Britt (R-AL): Would it be inappropriate to move forward with finalizing the long-debt term proposal prior to finalizing Basel III? Powell: I cannot give you a clear answer on that. Basel III will not be completely finalized for some time, but that is not to say we will not reach a place where people understand, accept, and support what it is that we are doing.
Katie Britt (R-AL): Basel III would increase hedging costs in derivatives markets for the agriculture space by 20 percent, meaning banks would be far less likely or inclined to offer clearing services to commercial hedgers. This could have a detrimental effect on our agriculture community and increase other costs providing food and fiber for our nation. Do you believe the revised Basel proposal would alleviate these concerns that our farmers and agriculture community have had about Basel III, and has the Fed done anything specifically? Powell: We are very aware of and focused on that particular set of changes and are paying close attention to the issues you raised.
Steve Daines (R-MT): Could you share what changes you are planning to make and the update proposal of Basel III? Powell: We have had extensive discussions led by Vice Chair Barr with the FDIC and OCC. The work that remains is to agree on a process of how we move forward. It is our view institutionally that we need to put the changes out for comment for some period of time.