PYMNTS MonitorEdge May 2024

The Fed Reportedly Backing Off Tougher Capital Requirements

The tougher capital requirements the government had planned for banks may not be as tough.

That’s according to a Sunday (May 19) report by The Wall Street Journal (WSJ), which argues that efforts by banking CEOs like JPMorgan Chase’s Jamie Dimon to push back against the Federal Reserve’s proposal that banks hold more capital appear to have paid off.

Sources tell WSJ that regulators are now considering a plan that would “significantly” reduce an almost 20% mandated increase in capital for the largest American banks.

The required increase for lenders such as JPMorgan and Goldman Sachs — designed to ensure they have sufficient buffers to absorb potential losses — would on average be around half as much as originally planned.

WSJ said this would be a major victory for banks, who say the rules — as originally laid out — would hinder lending and ramp up costs. The report also argues the move marks a shift in the balance of power between banks and regulators, in which the Fed had historically held the upper hand.

According to the report, Dimon last fall told other CEOs to go around Michael Barr, the Federal Reserve’s central bank’s vice chair for banking supervision, and lobby other Fed governors to change the proposal.

Those rules came in response to a series of banking failures last year, but Barr has said that he wants banks to see new capital requirements as a help, not a hindrance, telling an American Bankers Association last year that the proposed rules would make the financial system safer.

“The proposal is projected to raise capital for large banks,” Barr said. “This may result in higher funding costs. But this is only half the story. Capital also enables banks to absorb more losses without risking their ability to repay their creditors.”

In other banking regulation news, the House Financial Services Committee (HFSC) voted last week to advance a bill that would raise the asset thresholds for a number of regulations covering banks from $10 billion to $50 billion.

The HFSC said in its release that the bill would provide a more transparent and timely bank merger review process, and require more engagement and transparency regarding Federal Reserve stress testing. It will also improve the bank supervisory appeals process, require the Federal Reserve to repair deficiencies in the discount window, and give small bank holding companies additional relief, the committee said.

Rep. Andy Barr, who introduced the bill, said the legislation “will provide financial institutions with the relief needed to serve their communities and customers without the punitive regulatory and supervisory burdens that impede them from doing so currently.”