Arlington, VA — A coalition of free-market organizations is raising red flags over the proposed Regulatory Capital Rule affecting large banking organizations. In a joint statement to regulatory bodies, these prominent leaders stress the urgent need to mitigate risk for banks and taxpayers while ensuring capital remains accessible and affordable.

The coalition highlights that the suggested higher capital requirements could have widespread ramifications, impacting crucial sectors of the U.S. economy, including homebuyers, small businesses, and manufacturers. Central to their concerns is the absence of essential economic analysis and data in the Proposal, questioning its justification and potential consequences.

Moreover, the coalition expresses reservations about the Proposal’s circumvention of statutory provisions within the Economic Growth, Regulatory Relief, and Consumer Protection Act (P.L. 115-174), potentially undermining the legislative intent of Congress.

Advocating for a private-sector approach, the coalition urges regulators to permit banks to engage in insurance and reinsurance-based credit risk transfers. These transfers act as a private capital buffer, safeguarding taxpayers from underlying credit risks. The Proposal should explicitly authorize banks to use insurance and reinsurance products, considering them as “eligible guarantees,” with insurers and reinsurers recognized as “eligible guarantors.”

Furthermore, the coalition recommends dismantling regulatory barriers preventing banks from leveraging insurance and reinsurance. Options such as lowering the risk weight for certain insurance and reinsurance exposures are proposed to provide flexibility.

Drawing attention to successful global practices, the coalition argues that the U.S. risks a competitive disadvantage if it fails to allow banks to use insurance and reinsurance credit risk transfers.

Expert insights from Steve Pociask, President/CEO of the American Consumer Institute, and David Williams, President of the Taxpayers Protection Alliance, emphasize the need for regulators to carefully consider the broader impacts and adopt private-sector solutions for a resilient financial sector.

For detailed insights and expert commentary, read the full statement here.