Regulators Propose 4.8 Percent Cut to Bank Capital Rules
U.S. regulators proposed a 4.8 percent cut to Wall Street bank capital rules on Thursday. The move aims to boost lending by easing post-crisis requirements.
Major banks in the United States are poised for a significant reduction in capital requirements following the unveiling of softened regulatory rules. On Thursday, U.S. bank regulators introduced a revised plan that would see capital levels for Wall Street banks fall by 4.8%, a move that marks a substantial victory for an industry that had previously braced for double-digit increases. The new proposal suggests a 5.2% decline for larger regional banks, while institutions with assets under $100 billion would see their capital requirements drop by 7.8%. According to a briefing memo from the Federal Reserve, the adjustments are intended to streamline the existing framework. > The proposals under consideration would further enhance and streamline the capital framework while ensuring that U.S. banking organizations continue to be safe, sound, and able to support the U.S. economy across all economic conditions. The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) are set to begin soliciting feedback on the Basel draft. This overhaul follows a prolonged campaign by the banking sector to ease regulations established after the 2008 financial crisis, which industry leaders argued were hindering economic growth. Michelle Bowman, the Fed Vice Chair for Supervision who led the initiative, defended the changes as a necessary calibration of risk. > Bank capital would still remain robust under the changes which would better calibrate requirements in line with risks. The proposal has faced internal opposition from Michael Barr, Bowman’s Democratic predecessor. Barr, who had previously sought to hike capital requirements by as much as 20% for certain banks, indicated he plans to dissent during the Fed meeting. > The changes are unnecessary and unwise. The Federal Reserve also intends to propose updates to the GSIB surcharge for global banks, adjusting how short-term funding risks are calculated. Analysts at Morgan Stanley recently estimated that large banks hold approximately $175 billion in excess capital. With the new rules providing greater clarity, these institutions may soon begin freeing up those funds for dividends, share buybacks, and increased lending.
