Powell: 'Essential' that bank regulators re-propose Basel plan

By Pete Schroeder

(Reuters) - U.S. Federal Reserve Chair Jerome Powell said on Tuesday that it is the "strongly held" view of the Fed board that bank regulators should seek additional feedback on a contentious effort to hike bank capital, a move that the industry had sought.

Powell said the Fed, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency had made significant progress on refining the so-called "Basel III Endgame" proposal, which would overhaul how larger banks gauge risk and how much capital they should hold.

But he said the agencies were working through how to proceed with the effort, and whether to finalize the rule so it can take effect, or solicit more feedback. Powell endorsed the latter, while noting the other agencies did not yet agree on that approach.

"My view, the strongly held view of members of the board, is that we do need to put a revised proposal out for comment for some period," he told the Senate Banking Committee. "When there are broad material changes, that has been our practice."

He later said he thought a re-proposal was "essential" given the changes under consideration.

Powell's comments confirm Reuters' reporting in June that regulators were split on how to proceed with the rule, with the Fed open to a re-proposal while the other two agencies opposed it, seeing it as an unnecessary step that could delay the project with a presidential election just months away.

Banks, which fiercely opposed the original proposal that would hike capital requirements for larger banks, have been calling for a re-proposal. Regulators have been working for months on revising the plan in a way that could significantly curtail the capital impact for larger firms.

Powell did not detail how or when regulators might settle the process question, but said if they do re-propose the plan, it likely would not be an abbreviated effort.

"It will take some time," he said.

A lengthy delay to finalize the Basel rules could imperil the current effort, as a victory by presumptive Republican nominee Donald Trump in November could see him install some new regulators who are not supportive of the project.

BANK COMPENSATION

Later in the hearing, Powell engaged in a testy exchange with Senator Elizabeth Warren, who chastised the Fed for not joining other regulators in considering long-delayed rules overhauling how banks compensate executives.

Other financial regulators in May announced they were resuming work on a 2016 proposal to establish executive compensation rules, but the Fed has not announced similar efforts.

Warren, a Democrat who frequently criticizes the banking industry, said the Fed should join that effort, and could not rely on the industry to effectively police executive pay to ensure banks do not take on excessive risk.

"I understand why the biggest banks in the country like your approach, you let them do whatever they want. But you don't work for giant banks, you work for the American people. I urge you to do your job," she said.

Powell defended the Fed's efforts, noting that it had previously put out guidance on compensation practices and that bank supervisors monitor the issue, saying this approach "seems to have largely worked" without formal rules in place.

He added that the Fed is continuing to examine the issue, but he did not see value in simply resuming work on the lingering rule proposal, and the matter merited fresh study.

(Reporting By Dan Burns and Pete Schroeder; Editing by Nick Zieminski and Rod Nickel)