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On Tuesday, U.S. banks are set to advocate for a significant overhaul of a draft rule on bank capital in their ongoing efforts to dilute the impact of the “Basel Endgame” proposal. Wall Street contends that the proposed rule, aimed at increasing bank capital, could adversely affect the economy. Comments on the Basel rule, along with two additional draft rules focusing on big bank capital and long-term debt, are due by Tuesday, providing banks with a crucial opportunity to influence the direction of the regulatory framework.
Banks have vehemently opposed the Basel rule, employing extensive lobbying efforts, public advertising, and media campaigns to challenge its implementation. As the deadline for comments approaches, the banking industry anticipates submitting a wave of negative feedback, potentially paving the way for a comprehensive revision or a re-proposal of the rule.
While it is uncommon for the Federal Reserve to rewrite rules, analysts believe that the substantial opposition could prompt a reconsideration. Michael Barr, the central bank’s vice chair for supervision and a key architect of the rule, has argued that the recent banking crisis underscores the need for additional capital to guard against unforeseen shocks.
The Basel rule, introduced in July, aims to recalibrate how banks calculate the cash reserves needed to cover risks. However, banks argue that the rule is unnecessary, given the ample capital already present in the industry. They contend that the stringent requirements could adversely impact various financial services, from green lending and pension plan offerings to commodities hedging and Treasury market liquidity. In response, banks are expected to call for the Federal Reserve to repropose the rule.
Citigroup CEO Jane Fraser expressed hope for a complete revision, emphasizing that the rule would hinder U.S. bank competitiveness and redirect lending towards shadow banks. In a notable move, bank groups representing Citigroup, JPMorgan Chase & Co, and Bank of America, among others, issued a public letter on Friday warning the Federal Reserve that the rule, if finalized, would violate federal laws.
Kevin Fromer, CEO of the Financial Services Forum, representing the CEOs of the largest eight U.S. banks, stated, “The agencies have not made the case for this proposal or considered its substantial impacts.” While litigation remains a potential course of action, it is not the preferred route, according to JPMorgan Chief Financial Officer Jeremy Barnum. Barr acknowledged the feedback and indicated that the Fed is considering possible fixes to address concerns raised by the industry.
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