CFA signed on to a comment letter by Americans for Financial Reform, that supports Basel III risk-based capital surcharges, as proposed by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.

We support the broader purpose of the Basel III reforms, which is aimed at promoting greater financial security in the banking system, tackling undercapitalization, and reducing outsized risk-taking by larger banks. The Basel Committee articulated its international standards for bank safety and soundness in the wake of the 2008 financial crisis. Member countries committed to implementing these requirements in 2017. The recent 2023 US banking crisis reinforced the need for enhanced capital requirements. The comment letter also highlighted this as the need to reduce “the privatization of gains and the socialization of losses.”

At the same time, our comment recognizes the need to change small parts of the proposal, which would impact mortgage affordability and access for lower-income borrowers and borrowers of color. Indeed, as also argued by the National Fair Housing Alliance, this part of the proposal risks imperiling fair lending access and is based on risk-standards inconsistent with the actual risk associated with the mortgage products often used by these consumers. For example, a large part of the risk of high-LTV products, those with a down payment of under twenty percent, is taken on by mandatory private mortgage insurance (PMI). While we recognize the importance of changing this element of the Basel III proposal, and of protecting lower-income borrowers and borrowers of color, this proposed change does not delegitimize or change the broader need for improved capital standards.