Treasury Secretary Urges Rethink of Bank Capital Rules, Igniting regulatory Clash
Table of Contents
- 1. Treasury Secretary Urges Rethink of Bank Capital Rules, Igniting regulatory Clash
- 2. The Collins Amendment and the ‘Dual-Stack’ Requirement
- 3. How the System Evolved and Became Binding
- 4. Basel III Implementation Adds Complexity
- 5. The Path Forward and Ongoing Debate
- 6. Understanding Bank Capital Requirements: A Primer
- 7. Frequently Asked Questions about Bank capital requirements
- 8. is the current policy guidance from the Biden management sufficient to address concerns regarding police militarization, or is further legislative action necessary to modify or repeal the Collins Amendment?
- 9. Is the Collins Amendment in its Final Phase?
- 10. Understanding the Collins Amendment & Its Origins
- 11. The Evolution of the Amendment: From Broad Support to Increased Scrutiny
- 12. Key Legislative Changes & Amendments (2018-2024)
- 13. Current Status: A Shifting Landscape (October 2025)
- 14. the Impact on Law Enforcement funding & Equipment Acquisition
- 15. Benefits of Restricting Military Equipment Transfers
- 16. Looking Ahead: The Future of Police Equipment & Oversight
Washington D.C. – A decades-old unwritten rule in washington regarding laws named after sitting senators is being tested as US Treasury Secretary Scott Bessent calls for a critically important overhaul of how banks calculate their capital requirements. The move challenges a provision within the Dodd-Frank act and has set off a debate among regulators and within the banking industry.
The Collins Amendment and the ‘Dual-Stack’ Requirement
At the heart of the dispute lies the ‘Collins Amendment,’ introduced by senator Susan Collins as part of the Dodd-Frank Act following the 2008 financial crisis. This amendment mandated that US banks utilize both regulatory standardized approaches and their own internal models when determining their capital adequacy, applying the stricter of the two results. This practice, known as the ‘dual-stack’ requirement, aimed to prevent larger banks from exploiting internal models to reduce their capital holdings and to ensure a level playing field with smaller lenders.
Bessent, in a recent address, questioned the fundamental logic behind this dual-stack system, arguing it was designed to artificially inflate capital aggregates rather than being based on sound financial methodology. This assertion has drawn scrutiny, as Senator collins maintains the amendment’s original intent was to bolster financial stability.
How the System Evolved and Became Binding
initially, the Collins Amendment sought to address concerns that internal models might offer advantages to larger banks. However, over time, the ‘Collins Floor’ – the capital requirement based on standardized approaches – became the dominant constraint for most major US banks. The introduction of the stress capital buffer (SCB) in 2020 further solidified this trend,as the SCB was added to the Collins stack,resulting in even higher capital requirements.According to data from the Federal Reserve, the SCB averaged between 4% and 5% in recent years, considerably exceeding the previous 2.5% capital conservation buffer.
| Capital Requirement Component | Pre-2020 | Post-2020 |
|---|---|---|
| Capital Conservation buffer | 2.5% | Removed (replaced by SCB) |
| Stress Capital Buffer (SCB) | N/A | 4% – 5% (average) |
| Collins Floor | Binding for some banks | Binding for most large banks |
Basel III Implementation Adds Complexity
As US banks prepared for the implementation of the Basel III capital framework, a lobbying effort emerged to preserve the dual-stack requirement, even if the rationale behind the collins Amendment was diminishing.Banks with substantial SCBs believed maintaining the double stack would mitigate the impact of potential changes from Basel III, particularly the potential elimination of internal ratings-based (IRB) approaches for credit risk.
However, former Federal reserve Vice-Chair Michael Barr proposed a modification that upended this strategy. While retaining the dual requirement, Barr stipulated that the SCB would apply to both stacks, effectively rendering the Collins stack less relevant as the enhanced risk-based approach (ERBA) became the new, more stringent benchmark. This proposal has faced criticism from banking institutions who argue that it increases capital requirements unnecessarily.
Did You Know? The basel III framework is an internationally agreed set of measures, developed in response to the financial crisis of 2008, to strengthen the regulation, supervision and risk management of banks.
The Path Forward and Ongoing Debate
Bessent currently advocates for abandoning the dual-stack requirement, arguing that it adds needless complexity without addressing the core challenges posed by Basel III. However, eliminating the ERBA stack is unlikely, as it incorporates essential risk components like operational risk and credit valuation adjustments. Senator Collins could possibly be persuaded to revisit the amendment, but this wouldn’t alleviate the broader impact of increased capital requirements under Basel III.
Pro Tip: Staying informed about regulatory changes in the financial sector is crucial for investors and financial professionals. Regularly consult resources from the Federal Reserve, Treasury Department, and industry associations.
With the recent change in Federal Reserve leadership, the future of these proposals remains uncertain.While Barr proposed minor adjustments to the ERBA,they are unlikely to significantly reduce capital requirements for major US banks. The preservation of the IRB approach for credit risk is seen by many as the most effective way to moderate the Basel III endgame, but it faces bipartisan opposition.
Understanding Bank Capital Requirements: A Primer
Bank capital refers to the financial resources a bank has available to absorb potential losses. Regulatory capital requirements are designed to ensure banks have sufficient capital to withstand economic shocks and maintain financial stability. These requirements are based on a complex set of rules established by international bodies and national regulators.
the Basel Accords are a series of international banking regulations developed by the basel Committee on Banking Supervision (BCBS). These accords aim to promote financial stability by establishing minimum capital standards for banks globally. Basel III is the latest iteration of these standards, introduced in response to the 2008 financial crisis.
Frequently Asked Questions about Bank capital requirements
- What is the Collins Amendment? The Collins Amendment, a part of the Dodd-Frank Act, requires US banks to calculate capital adequacy using both standardized approaches and internal models, applying the higher result.
- What is the ‘dual-stack’ requirement? This refers to the practice mandated by the Collins Amendment of using both standardized and internal models to calculate capital requirements.
- What is the stress capital buffer (SCB)? The SCB is a dynamic buffer added to capital requirements based on the results of the Federal Reserve’s stress tests.
- How does Basel III impact bank capital requirements? Basel III introduces stricter capital standards and aims to improve the resilience of the banking system.
- Why is there debate over these requirements? There is debate over the appropriate level of capital requirements, with banks arguing they can stifle lending and economic growth.
what are your thoughts on the balance between regulatory oversight and fostering economic growth within the banking sector? Do you believe the current capital requirements are adequate,or should they be adjusted?
Share your outlook in the comments below!
is the current policy guidance from the Biden management sufficient to address concerns regarding police militarization, or is further legislative action necessary to modify or repeal the Collins Amendment?
Is the Collins Amendment in its Final Phase?
Understanding the Collins Amendment & Its Origins
The Collins Amendment, formally known as the Protect and Serve Act, has been a notable point of contention and evolution within federal law enforcement funding and oversight. Introduced by Congressman Doug Collins in 2017, the amendment initially aimed to broaden the eligibility criteria for grants provided by the department of Justice (DOJ) to state and local law enforcement agencies. Specifically, it sought to allow funding to be used for the purchase of certain types of military-grade equipment – a point that immediately sparked debate. The core of the issue revolves around the 1033 Program, a Department of Defense initiative transferring surplus military equipment to civilian law enforcement.
The Evolution of the Amendment: From Broad Support to Increased Scrutiny
Initially, the Collins Amendment garnered bipartisan support, framed as a way to equip local police departments with the tools necessary to respond to escalating threats, notably in the wake of active shooter events. Proponents argued that access to specialized equipment like armored vehicles and high-powered rifles was crucial for officer safety and effective crime prevention.
Though, the national conversation surrounding police militarization, fueled by events like the protests in Ferguson, Missouri, and subsequent scrutiny of police tactics, dramatically shifted public perception. Critics argued the amendment facilitated the needless escalation of force and contributed to a growing divide between law enforcement and the communities they serve. This led to increased calls for restrictions on the 1033 Program and a re-evaluation of the Collins amendments impact.
Key Legislative Changes & Amendments (2018-2024)
The Collins Amendment hasn’t remained static. Several attempts have been made to modify or repeal it. Here’s a timeline of significant changes:
* 2018: First attempts to attach riders to appropriations bills restricting the use of funds for certain types of military equipment. These largely failed due to strong opposition.
* 2020: Following widespread protests, increased pressure led to a temporary pause on some transfers under the 1033 Program. Amendments were proposed to specifically prohibit the transfer of certain items, like tracked armored vehicles and weapons of a military grade.
* 2021: The Biden administration issued policy guidance restricting the transfer of certain military equipment,effectively narrowing the scope of the Collins Amendment without legislative action. This guidance focused on items deemed to be overly aggressive or unsuitable for local policing.
* 2023-2024: Renewed legislative efforts to codify the Biden administration’s policy guidance into law. These efforts faced significant hurdles, highlighting the continued partisan divide on the issue. Debate centered around defining “military-grade equipment” and establishing clear criteria for allowable transfers.
Current Status: A Shifting Landscape (October 2025)
As of October 31, 2025, the Collins amendment exists in a considerably altered state. while the original language remains on the books, its practical effect has been substantially curtailed by the Biden administration’s policy guidance and ongoing legislative efforts.
Several key factors suggest the amendment is nearing its final phase:
* Increased Congressional Opposition: A growing number of lawmakers from both parties are publicly questioning the necessity of the Collins Amendment in its original form.
* Focus on Community Policing: There’s a national shift towards prioritizing community-oriented policing strategies, which emphasize de-escalation and building trust with residents – a philosophy often seen as incompatible with the militarization of police forces.
* Ongoing Legal Challenges: Civil rights organizations continue to challenge the legality of certain equipment transfers under the 1033 Program, potentially leading to further restrictions.
* Potential for full Repeal: Legislative proposals for a full repeal of the Collins Amendment are gaining traction, although their success remains uncertain.
the Impact on Law Enforcement funding & Equipment Acquisition
The changes surrounding the Collins Amendment have had a tangible impact on how law enforcement agencies acquire equipment. Agencies are now required to provide more justification for requests for military-grade equipment, and the DOJ has increased its scrutiny of these requests.
This has led to:
* A decrease in the transfer of certain types of equipment: Specifically, tracked armored vehicles, grenade launchers, and certain types of firearms have become more difficult to obtain.
* Increased investment in alternative technologies: Agencies are exploring non-lethal alternatives, such as body-worn cameras, de-escalation training programs, and mental health support services.
* Greater emphasis on clarity and accountability: Many agencies are now required to publicly disclose details about the equipment they receive through the 1033 Program.
Benefits of Restricting Military Equipment Transfers
Limiting access to military-grade equipment for local law enforcement offers several potential benefits:
* Reduced Escalation of Force: Less militarized equipment can contribute to a more measured response to situations, potentially reducing the risk of violence.
* Improved Community Relations: A less militarized police presence can foster greater trust and cooperation between law enforcement and the communities they serve.
* Cost Savings: Investing in alternative technologies and training programs can be more cost-effective than acquiring and maintaining expensive military equipment.
* Focus on Proactive Policing: Shifting resources away from militarization allows agencies to prioritize proactive policing strategies, such as crime prevention and community engagement.
Looking Ahead: The Future of Police Equipment & Oversight
the debate surrounding the Collins Amendment is likely to continue for the foreseeable future. Key areas to watch include:
* Further legislative action: Whether Congress