In July, the Federal Reserve, Federal Deposit Insurance Corp., and Office of the Comptroller of the Currency announced plans to compel banks with over $100 billion in assets to meet higher capital requirements.
The eight largest banks are expected to face a 19% higher capital requirement as part of these awaited reforms. These changes are linked to Basel III, an international initiative initiated in response to the 2008 financial crisis.
Stakeholders, including companies and consumer advocates, have several months to provide input.
Simkowitz noted that regulators expressed a willingness to find the optimal solution for the economy, though consensus on the rule’s final form was lacking. The ongoing process involves active engagement as stakeholders work to shape the rule, reflecting varying perspectives among regulators.
Wall Street CEOs Voice Strong Opposition to Higher Capital Requirements
Goldman Sachs CEO David Solomon expressed disagreement with the proposal and emphasized the significance of their input. In an interview with Reuters on Tuesday, Solomon stressed that the proposed higher capital requirements rules would influence economic growth.
He pointed out that the impact would extend to both large and small businesses, potentially affecting their access to capital.
JPMorgan CEO Jamie Dimon criticized the proposal, suggesting it might cause banks to reduce their involvement, and he questioned the transparency of regulators regarding the reasons behind the changes.
Morgan Stanley’s Dan Simkowitz, who leads investment management, expressed the bank’s active participation in the comment period until November’s end, highlighting illogical aspects of the proposal.
Banking associations leveled accusations against regulators
On Tuesday, American banking associations leveled accusations against the Federal Reserve and other regulatory bodies, alleging breaches of federal laws in a broad plan for higher capital requirements.
This marks an escalation in the criticism directed at the proposed rules, which had already faced vehement objections from bank executives. The groups representing major banks, including JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Citigroup, have written a public letter to the agencies.
They contend that the July proposal fails to meet the Administrative Procedure Act (APA) requirements due to insufficient public data and analysis. The APA imposes specific criteria on agencies when introducing new regulations, including the need for economic assessment.
These groups assert that banks cannot adequately assess the proposal without such an analysis, which mandates higher capital requirements. They recommend that the agencies halt any further progress on the rules until they undergo proper re-proposal.
This letter represents the most recent and assertive industry attempt to dilute the proposal, potentially setting the stage for a legal dispute. Bank regulators’ frequent lack of comprehensive analysis has been a common grievance among banks, but this time, the industry’s stance is notably forceful.
This more aggressive stance is attributed to the substantial scale of the proposal, as noted by an individual knowledgeable about the letter. The US central bank has projected that the proposal will result in a $170 billion elevation in industry capital requirements.
FDIC emphasized the regulations are needed
Although the draft rules were in progress before this year’s bank collapses, Federal Reserve and FDIC authorities emphasized that the crisis highlighted the need for stronger regulations.
Prior to the official presentation of the proposal, banks had already been advocating for concessions, as reported by Reuters in June. They have also sought support from Republican lawmakers in Congress to closely examine the initiative, according to multiple lobbyists.
The Regulations might escalate borrowing Expenses
The House of Representatives Financial Services Committee is scheduled to conduct a hearing on the proposal this Thursday. The Bank Policy Institute, representing major banks and a signatory of the letter, initiated an advertising campaign this month.
Their campaign cautions that the proposal might escalate borrowing expenses for consumers and enterprises and encourages citizens to voice their concerns to Congress.
Officials from various organizations endorsed the letter, including the American Bankers Association, the Financial Services Forum, and the Institute of International Bankers.
The Securities Industry and Financial Markets Association also added their signatures, as did the largest US business advocacy group, the Chamber of Commerce. This collective support underscores the broad industry opposition to the proposal of higher capital requirements.