The Federal Reserve has signalled to major lenders that it does not expect another aggressive industry campaign against new capital requirements, as regulators move closer to finalising long-debated reforms, people familiar with the matter told Reuters.
Key highlights
- Fed signals banks to limit pushback on capital rules
- Revised Basel III proposals ease earlier requirements
- Industry response expected during 90-day review
- JPMorgan flags potential capital increase
- Regulators aim to finalise rules this year
What happened
According to people familiar with the matter, Fed Vice Chair for Supervision Michelle Bowman told top bank executives that regulators have already addressed many concerns raised by the industry.
The message comes after the Fed unveiled revised proposals for Basel III and GSIB surcharge rules last month, which are expected to reduce capital requirements for large US banks by about 4.8%.
Why this matters
The updated framework marks a significant shift from the Fed’s original 2023 proposal, which had aimed for roughly a 20% increase in capital levels and triggered a fierce backlash from Wall Street.
By softening the rules, regulators are attempting to strike a balance between financial stability and economic growth while avoiding another prolonged confrontation with the banking sector.
Uneven impact across banks
Despite the overall easing, the benefits are not uniform.
JPMorgan Chase said its capital requirements could rise by around 4% under the new framework, highlighting disparities in how the rules affect individual institutions.
CEO Jamie Dimon has criticised aspects of the proposal, calling them flawed and raising concerns about their broader impact.
Industry response expected
Bank executives have indicated they will still seek targeted adjustments during the formal 90-day consultation period, though regulators have signalled that feedback should be measured and specific rather than confrontational.
The industry’s earlier campaign against the 2023 rules included lobbying lawmakers, advertising campaigns and threats of legal action.
Regulatory balancing act
Bowman and other officials have emphasised the need to finalise the rules this year after a lengthy and contentious process that drew scrutiny of the Fed’s policymaking approach.
At the same time, critics warn that easing capital requirements could increase risks to the financial system, while supporters argue that stronger economic growth can offset those concerns.
What happens next
The Fed is expected to review industry feedback over the coming months, with a goal of finalising the capital framework before year-end.
Upcoming US midterm elections could also influence the regulatory environment, particularly if political control shifts and leads to increased scrutiny of the reforms.
FAQs
Q1: What are Basel III rules?
They are global banking regulations that set minimum capital requirements to ensure financial stability.
Q2: Why is the Fed easing the rules?
To balance financial resilience with economic growth and address industry concerns.
Q3: Will banks still push back?
Yes, but likely in a more limited and targeted manner during the consultation period.
Q4: What’s next for the rules?
The Fed aims to finalise them later this year after reviewing feedback.
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