In a significant shift, US regulators have dramatically reduced the proposed capital increase for the nation’s largest banks, cutting the planned hike by nearly half. Originally, the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), and the Office of the Comptroller of the Currency (OCC) had proposed a 19% increase in capital requirements for the eight major US global systemically important banks, which include financial giants like Bank of America Corp. and JPMorgan Chase & Co. This requirement was designed as a buffer against potential financial shocks and unexpected losses.
However, according to sources familiar with the matter, the revised plan now calls for a more modest 9% increase in capital. This substantial reduction is seen as a strategic move to address the intense lobbying efforts from the banking sector, which had strongly opposed the initial proposal. The revised capital hike aims to balance regulatory goals with the banking industry’s concerns and may help Federal Reserve Chair Jerome Powell secure broader support from the central bank’s board, avoiding potential legal battles.
Fed Vice Chair for Supervision Michael Barr is expected to provide a preview of these changes in an upcoming speech on Tuesday. The regulators are anticipated to release a detailed set of revisions, potentially spanning up to 450 pages, on September 19. These revisions will be part of an ongoing overhaul linked to Basel III, an international regulatory framework introduced over a decade ago in response to the 2008 global financial crisis.
The initial proposal’s dramatic reduction to a 5% overall capital increase for a broader group of US banks had raised concerns among some regulatory officials. The forthcoming plan will likely be open for a 60-day comment period, with final adoption potentially occurring well into the next year, as indicated by Powell.
Despite the scaled-back increase, banks may still express dissatisfaction with certain aspects of the revised plan. Industry members have voiced concerns over various elements, including the treatment of trading risks and the interaction of the new rules with annual stress tests. Some experts, like Jeremy Kress, a former Fed bank-policy attorney, anticipate that banks may seek an extension of the comment period. Kress also noted the possibility that a change in political leadership could impact the rule’s implementation, citing potential challenges from a Republican-controlled Congress or a future administration.
While individual banks might be hesitant to challenge the revised rules on their own, given the collective nature of the concerns, financial risk consultant Mayra Rodriguez Valladares suggests that a solo challenge could prove counterproductive for any single institution.
With regulatory changes on the horizon, the banking sector will be closely watching how these modifications impact their operations and compliance strategies in the coming months.
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