Top regulators from the Federal Reserve, including Michael Barr, the Federal Deposit Insurance Corporation's Martin Gruenberg, and acting Comptroller of the Currency Mike Hsu, will be defending their plans to increase U.S. bank capital requirements this week in front of Congress. They will appear before the Senate Banking Committee on Tuesday and the House of Representatives Financial Services Committee on Wednesday. This will be their first appearance on Capitol Hill since proposing the "Basel III Endgame" rules in July, and it will provide insight into where the Democrat-led committee stands on the issue.

The proposal aims to revamp how banks assess risk and determine the amount of capital they must hold in order to mitigate potential losses. Regulators argue that stronger cash cushions will make the financial system safer, especially after the failure of three banks earlier this year. However, banks have strongly criticized the proposal, claiming that it will negatively impact lending and the broader U.S. economy. They have been lobbying lawmakers to put pressure on the regulators to scrap the proposal.

On Monday, a group of 39 Senate Republicans wrote a letter to major U.S. banking regulators, urging them to withdraw the proposal. The Republicans argue that the increased capital requirements could hinder lending and harm the economy. This letter represents one of the most explicit attempts so far to derail the proposal, highlighting the ongoing criticism from Republicans.

During the hearings, analysts and lobbyists will be closely observing the stance of more moderate Democrats, such as Senators Mark Warner and Jon Tester, as their opinions could influence industry comments and the final decision-making by the regulators.

In addition to the capital requirements issue, regulators may also face questions about a report from The Wall Street Journal that revealed a “toxic” culture at the FDIC, leading to the departure of female employees and a lack of punishment for misconduct. Martin Gruenberg, the head of the FDIC, addressed these concerns internally and stated that the agency does not tolerate harassment. An external firm has been hired to review the FDIC's practices.

Furthermore, officials may be queried about a ransomware attack on the U.S. division of the Industrial and Commercial Bank of China, which disrupted trading in the $26 trillion U.S. Treasury market.

The testimony and questioning during the hearings will shed light on the ongoing debate surrounding the proposed capital requirements and provide insight into the regulators' response to the concerns raised by lawmakers and industry players.