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In response to last year’s banking crisis, the Federal Reserve and other U.S. regulators are reportedly gearing up to introduce new banking regulations this spring, aiming to prevent the kind of liquidity issues that led to the downfall of several regional banks in the spring of 2023. According to a New York Times (NYT) report on Tuesday, at least some policymakers are pushing to release a proposal before a regulatory conference scheduled for June.
The proposed rules, as outlined in the NYT report, would be in addition to existing regulations that have already sparked tension between major U.S. banks and financial regulators. These new rules specifically target liquidity concerns, aiming to avoid bank runs and stabilize the financial system.
As previously reported, JP Morgan Chase & Co. and Citigroup, two of the largest U.S. banks, have expressed concerns about proposed capital rules, asserting that they could impact credit availability, pricing for businesses and consumers, and necessitate banks to set aside more capital, potentially affecting stock buybacks and investments.
JPMorgan CEO Jamie Dimon recently criticized the changes during a private gathering in Miami, stating that nothing regulators had done since last year had addressed the root issues that caused the regional banking crisis. Dimon further complained that the government’s capital rules unfairly target larger banks that were not involved in the previous year’s collapse.
While some in the industry have raised concerns about the potential impact of the new regulations, Michael Barr, the Federal Reserve’s vice chair for supervision, argued last year that the proposed capital requirements would enhance the financial system’s resilience.
“The proposal is projected to raise capital for large banks,” Barr explained. “This may result in higher funding costs. But this is only half the story. Capital also enables banks to absorb more losses without risking their ability to repay their creditors.”
Jeremy Kress, a former Federal Reserve banking regulator, and current co-faculty director of the Center on Finance, Law & Policy at the University of Michigan, suggested that banks’ vocal opposition to capital rules might diminish their credibility in criticizing the new regulations.
“There is a risk of the boy who cried wolf,” Kress stated. “If they’re fighting every reform tooth and nail, their criticisms are going to start to lose credibility.”
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