First the big banks asked why tougher regulations proposed by the Federal Reserve and other agencies were so onerous. Now they want to know why they need to face stricter rules at all.
Why it matters: An in-the-weeds proposal from a trio of financial regulators is being significantly pared back after unprecedented backlash. It was unclear whether Wall Street would take that as a win, but the fight looks like it will continue.
The big picture: From the standpoint of regulators, the goal in requiring banks to have more capital was to safeguard the financial system from any shocks.
- From the standpoint of banks, higher capital requirements aren’t necessary given they have withstood turmoil in recent years, including the pandemic and the regional bank failures.
Driving the news: Michael Barr, the Fed’s top bank cop who has been the face of stricter proposals, gave the industry a win by acknowledging that too big of a capital increase could have negative impacts on the economy.
- Revisions unveiled by Barr last week would increase bank capital by 9%, instead of a 20% hike he originally proposed last summer — significantly whittling back one of the most contentious aspects of a set of rules known as Basel III Endgame.
The intrigue: That was a victory for Wall Street, after lobbying groups launched an intense media campaign (including on television during a primetime NFL game) and threatened to sue their regulators if the proposal had moved forward.
- But now, according to an industry source, the groups want to know why capital requirements need to go up at all — a new stance after the fight to show why a too-high increase could harm small businesses and low income borrowers.
- One argument you can expect to hear: Other countries have smaller capital increases.
What they’re saying: “Nine percent is still a meaningful increase in capital requirements,” said Kevin Fromer, head of the Financial Services Forum, a bank lobbying group.
- “It’s certainly higher than what the EU was planning on doing. It’s significantly higher than what the UK announced last week that it was going to do,” Fromer added.
The other side: The revamp, Barr said in a speech on Sept. 10, would result in a “safer and fairer banking system.”
- “My goal, throughout my nearly 30 years in this field, has always been to help ensure that the banking system can support households and businesses of all types, during good times and bad,” Barr said.
What’s next: The revisions detailed by Barr have yet to be published in full. When they are, they will be subject to comments from the public and, potentially, further changes.
- “We’re going to take comments and make appropriate changes,” Fed chair Jerome Powell told reporters this week, aiming for a conclusion in the first half of next year.
- In his speech, Barr called the revisions an “interim step,” noting the Fed is open to comments on any aspects of the proposals.
