Senator Cramer Questions Chair Powell on Effects of Basel III Endgame on Electric Cooperatives, Reiterates Importance of the Federal Reserve’s Political Independence

WASHINGTON – The Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) announced proposed regulations to implement the final components of the Basel III agreement to raise bank capital requirements. The proposal was created to set the standards for capital reserves, liquidity, and leverage at financial institutions. Under the proposal, large banks will be mandated to transition to the new framework on July 1, 2025, with full compliance starting July 1, 2028.

However, this new proposal is expected to restrict billions of dollars in capital from financial institutions and hinder access to credit for consumers. In comments to the regulators regarding the Basel III Endgame proposal, 97% expressed concerns about the implementation.

Earlier this year, Basin Electric Power Cooperative, a major electric cooperative based in Bismarck, North Dakota, testified before the Commodity Futures Trading Commission (CFTC) where it expressed apprehensions about the potential pitfalls of implementing Basel III Endgame.

During a Senate Committee on Banking, Housing, and Urban Affairs hearing with Federal Reserve Chairman Jerome Powell, U.S. Senator Kevin Cramer (R-ND) highlighted Basin Electric’s comments, showing how the proposal will impact the ability of electricity generators ability to provide reliable and affordable service to customers.

During its testimony before the CFTC, Basin Electric highlighted how as part of an electric cooperative’s risk management program, a cooperative may purchase natural gas, in advance on a long-term basis, at a fixed price for use in its natural gas power plant. Basin Electric reiterated the importance of fixed price fuel in protecting the electric cooperatives’ financial position since the electricity market’s prices fluctuate based on the spot prices of natural gas. It explained if electric cooperatives are unable to secure the appropriate financial instruments to mitigate their market and energy price risks, then the costs would be financially detrimental to Americans and U.S. businesses.

“This is an electricity supply that we're talking about: it’s critical it remains reliable, it's critical that it remains affordable,” said Cramer. “Part of an electric cooperative’s risk management, of course, is how it buys the fuel that generates the electricity, and in this case, natural gas. They may buy natural gas in advance at a fixed price, realizing that natural gas is one of those commodities that goes up and down in pretty big swings at times, but they can hedge by buying it at a fixed price for power plants, and it protects the cooperative financially since electricity prices again follow those spot prices generally. So, if spot prices spike, so do electricity prices. However, with a natural gas hedge, the cooperative can generate electricity at a lower fixed fuel cost protecting itself and its consumers from high prices. It's an upfront cost on the balance sheet between the cooperative and its bank, but it protects the reliability and affordable supply of electricity.”

After providing the real-world example, Powell said they are aware of the issue and he appreciated Cramer bringing it up.

Cramer then emphasized that the independence of the Federal Reserve is essential and he has resisted moves within his own party to change it.

“But those moves are very narrow and I don't think very realistic,” said Cramer. “Perception does matter. It matters a great deal. […] And so, I would just submit to you, and you haven't said you're going to do this, but any move to lower interest rates or move interest rates either direction before November 5 could certainly be a bad perception. Even if there's a strong push to do that. I know you understand that. But I just want you to know that. As long as you remain independent, I'll be on your side.”

Following the introduction of the Basel III Endgame, Cramer has been vocal in his efforts to speak out about the misguided proposal. In January, Cramer joined two letters citing concerns over the Basel III Endgame proposal’s impact on consumers and requesting the withdrawal of the proposal. Additionally, he cosigned a letter to highlight the impacts of proposed capital requirements for mortgage loans.