Testifying before a Senate committee, federal banking regulators defended their proposals to raise capital requirements for banks.

Federal Reserve Board Vice Chair for Supervision Michael Barr, Federal Deposit Insurance Corporation (FDIC) Chair Martin Gruenberg, National Credit Union Administration (NCUA) Chair Todd Harper, and Acting Comptroller of the Currency Michael Hsu all testified at the U.S. Senate Committee on Banking, Housing and Urban Affairs’ hearing on “Oversight of Financial Regulators: Protecting Main Street Not Wall Street.”

It is the first time that Barr, Gruenberg and Hsu appeared before the committee 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. It has been opposed by 39 Republican senators, led by Sen. Tim Scott (R-S.C.), the committee’s ranking member, who have urged its withdrawal.

In a Nov. 12 letter to Federal Reserve Board Chair Jerome Powell, Gruenberg and Hsu, those 39 senators stated, "We have serious concerns that, as proposed, Basel III will restrict billions of dollars in capital from those who need it most, resulting in costlier and more limited access to credit for millions of Americans. This would create severe, adverse impacts on the entire U.S. economy, from everyday American consumers to the small businesses that are the backbone of our economy."

Committee Chair Sherrod Brown (D-Ohio), who is in favor of the rules, said in a statement, "These capital rules represent the final—and long, long overdue—plank in the post-Financial Crisis overhaul of our regulatory capital framework. It’s about ensuring that the largest banks have enough capital to address the risks that are unique to their institutions, and weather crises and emergencies and other sudden events that affect their banks. The proposal also recognizes the systemic importance of banks that are large, just not quite as massive as the Wall Street megabanks—banks like Silicon Valley, before it collapsed. As we saw this spring, mismanagement and risky bets at those banks can still threaten the financial system—they also need to have enough capital to prevent the kind of threat to the economy we worried about earlier this year.

“The proposed rules would apply to banks with at least $100 billion in assets, [fewer] than 40 of the over 4,000 banks in our banking system,” Barr told the Committee. “Community banks would not be affected by this proposal.”

He also said that the focus is primarily on stricter requirements for activities such as trading, as opposed to traditional lending.

“The proposed rules are anticipated to increase capital requirements for large banks, but the effects for each bank would vary based on its activities and risk profile,” he said. “Notably, the increases would be most substantial for the largest and most complex banks, and the bulk of the estimated rise is attributable to trading and other non-lending activities.”

The proposed rule “would make important changes to address the capital weaknesses identified in the 2008 financial crisis, enhance the resilience and stability of the banking system, and enable the banking system to better serve the U.S. economy,” Greenberg said in his testimony. “For example, the proposal would address critical areas of the risk-based capital framework related to credit risk, operational risk, market risk, and financial derivative risk.”

Several moderate Democratic senators, including Sen. Jon Tester (D-Mont.), agreed with their Republican colleagues. "If this rule doesn’t work, it’s going to raise hell with the economy," he said, according to Reuters.