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US Senate Republicans urge bank regulators to scrap capital hike efforts

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© FILE PHOTO: An eagle tops the U.S. Federal Reserve building’s facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst/File Photo

By Pete Schroeder

WASHINGTON () -A group of 39 Senate Republicans in a letter on Monday called on major U.S. banking regulators to withdraw a contentious proposal to significantly raise bank capital requirements, warning it could hinder lending and harm the economy.

THE TAKE

Republicans have been consistently critical of the so-called “Basel III endgame” proposal, but Monday’s letter marks one of the broadest, most explicit attempts so far to derail that effort, as lawmakers contend the proposal, if finalized, could curb banks’ activity by forcing them to hold more capital.

CONTEXT

* The Federal Reserve, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (OCC) proposed an overhaul to how banks gauge their risk, and in turn how much capital they must have as a cushion, in July. Regulators said stronger cushions will guard against future unforeseen risks, and cited the failures earlier this year of three large U.S. lenders as a warning.

* Banks have been extremely critical of the plan, arguing it could force them to curb lending, scrap certain products, and that the costs outweigh the benefits.

* Regulators have said they are continuing to gather data for the proposal, and have given firms more time to provide feedback.

* Senator Tim Scott, the top Republican on the Senate Banking Committee and a former presidential candidate, and Senate Minority Leader Mitch McConnell were among the senior Republicans in the chamber to sign Monday’s letter.

* Spokespeople for the Fed and the OCC declined to comment on the substance of the letter, and a spokesperson for the FDIC did not respond to a request for comment.

WHAT’S NEXT

U.S. banking regulators are due to testify before the Senate Banking Committee on Tuesday, when they are expected to be pressed on the proposal by Republicans.

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