Major US banks faced capital growth requirements reduced to 9%, which was a sharp reduction compared to the original plan.
The Zhitong Finance App learned that, according to people familiar with the matter, after regulators agreed to completely revise the proposed package of rules, the capital increase requirements faced by major US banks fell to 9%, which was a sharp reduction compared to the original plan. The original plan of the Federal Reserve, the Federal Deposit Insurance Corporation, and the US Monetary Supervisory Service required eight US systemically important banks, including Bank of America (BAC.US) and JPMorgan Chase (JPM.US), to increase capital by 19% to cushion unexpected losses and financial shocks.
Drastic reduction in capital requirements is more likely to appease banks, which have launched one of the most intense lobbying activities since the proposal was introduced last year. The revised draft may also help Federal Reserve Chairman Powell achieve the goal of receiving broad support from the Federal Reserve Committee. Powell has made it clear to the bank that he also wants to avoid a lengthy legal battle.
A representative of the Federal Reserve declined to comment.
Federal Reserve Vice Chairman Barr plans to outline these changes in his speech on Tuesday. According to media reports last week, the three regulators are expected to release a 450-page revised proposal as early as September 19.
This capital reform was first announced in July 2023 and is related to Basel III. The Basel Accord is an international agreement launched more than 10 years ago in response to the 2008 global financial crisis.
The Federal Reserve later proposed a greatly weakened version of the plan to other regulators, which shocked some agency officials. The weaker version suggests that the overall capital increase in the US banking sector should be as low as 5%, lower than the initial proposal of about 16%.
Powell said that the plan announced on Tuesday may have a 60-day review period, and the final adoption may take “later next year.”
Jeremy Kress, a former Federal Reserve banking policy attorney and currently a professor of commercial law at the University of Michigan, said that banks will almost certainly ask for a 60-day extension. But that's just one of those risks.
“Even if these agencies finalize a rule before the US president's inauguration day, Trump's victory could jeopardize implementation of that rule,” Kress said. The Republican-controlled Congress can overturn the rule through a congressional resolution reviewing the bill, or banking institutions can delay the compliance date and eventually repeal the rule.”
Industry insiders have raised a wide range of concerns, from how to handle transaction risks to how these proposals interact with annual stress tests. Individual banks may not necessarily be satisfied with small overall capital increases, but these banks may be unwilling to initiate legal challenges on their own.
Mayra Rodriguez Valladares, a financial risk and banking advisor who worked for the New York Federal Reserve, said, “A bank is unlikely to work alone; this may not help this bank.”
After the US stock market on Monday, large US banks were generally higher. J.P. Morgan Chase rose more than 2%, Bank of America, Citigroup (C.US), and Wells Fargo (WFC.US) rose nearly 2%, and Morgan Stanley (MS.US) rose more than 1%.