By Pete Schroeder and Michelle Price
WASHINGTON (Reuters) -The Federal Reserve's top Wall Street cop Michael Barr and other bank regulators defended plans to hike U.S. bank capital requirements before Congress on Tuesday as they face increasing pressure from many lawmakers to rein in their efforts.
Barr, the Federal Deposit Insurance Corporation's Martin Gruenberg and acting Comptroller of the Currency Mike Hsu appeared before the Senate Banking Committee for the first time since proposing the "Basel III Endgame" rules in July.
The proposal would overhaul how banks gauge risk and, in turn, how much capital they must hold against potential losses.
Regulators say stronger cash cushions will make the financial system safer and are especially crucial after three banks failed earlier this year. But lenders have attacked the proposal, saying it will hurt lending and the broader U.S. economy.
As part of their campaign to kill the Basel proposal, banks have been lobbying lawmakers to put pressure on the regulators. On Monday, 39 Senate Republicans stepped up the pressure, asking the regulators to scrap the proposal, citing economic harm, and quickly raised the issue again on Tuesday.
“You have failed to consider how these rules will impact banks and businesses of all sizes, ultimately harming the American people," Senator Mike Rounds, a Republican, told officials.
"Banks will now spend their time complying with more Washington bureaucratic red tape instead of investing that time or resources into their local communities."
Some Democrats, however, urged the agencies to hold firm against industry criticism and complete the rules, which were first envisaged following the 2007-2009 global financial crisis.
"These capital rules represent the final and long, long overdue plank in the post-financial crisis overhaul," said Senator Sherrod Brown, who chairs the panel.
"I hope you’ll see these arguments for what they really are, the same old Wall Street whining, and that you’ll deliver a strong capital rule."
Analysts and lobbyists will be watching closely on Tuesday to ascertain where more moderate Democrats like Senators Mark Warner of Virginia and Jon Tester of Montana stand on the issue.
"The most important voices during this hearing will be centrist Democrats, as their tone and tenor will impact both the comments from industry and the Fed’s response to those comments in a final rulemaking," said Isaac Boltansky, director of policy research for brokerage BTIG.
Gruenberg may also be pressed on a Wall Street Journal report that said female employees had left the regulator due to its "toxic" culture and that misconduct was not punished.
Republicans on the House of Representatives Financial Services Committee said on Tuesday they were calling for an urgent briefing from the FDIC on the allegations.
In his opening remarks before the Senate committee, Gruenberg said he was "personally disturbed" by the report and has hired an external firm to conduct a thorough review.
"I have no higher priority than to ensure all FDIC employees work in a safe environment where they feel respected," he said.
Officials may also be queried about a ransomware attack on the U.S. arm of China’s biggest lender, the Industrial and Commercial Bank of China, which disrupted trades in the $26 trillion U.S. Treasury market on Thursday.
(Reporting by Michelle Price and Pete Schroeder; editing by Jonathan Oatis)
