WASHINGTON, June 22 (Reuters) – U.S. banks are pushing
to soften a major regulatory proposal to hike bank capital
requirements, worried it could prove too onerous, especially for
lenders still reeling from the March banking crisis, according
to six people briefed on the matter.
Bank regulators led by the U.S. Federal Reserve are
finalizing the proposal which would implement international
capital standards agreed by the Basel Committee on Banking
Supervision in the aftermath of the 2007-2009 financial crisis.
Bankers are particularly concerned by an aspect of the draft
proposal that would apply higher capital charges on non-interest
revenue, such as the fees lenders charge on credit cards or
investment banking services.
That capital charge is part of the package agreed by the
Basel Committee in 2017, but the industry says it overstates the
risk for banks that have a high proportion of non-interest
income and had hoped U.S. regulators would mitigate its impact,
the people said.
Bank groups are pushing for regulators to cap the proportion
of assets on which such charges would apply, said three people,
but it was unclear if the agencies would take that approach.
Non-interest services income has been a key focus of
many lenders’ growth strategies in recent years, one industry
official noted.
American Express, Morgan Stanley and the
U.S. units of UBS, Deutsche Bank and Barclays are among banks
with a high proportion of non-interest income, according to a
2022 blog by Washington group the Bank Policy Institute.
Barclays, Deutsche Bank, and Morgan Stanley declined to
comment. UBS and American Express did not immediately provide
comment.
On Wednesday, Fed Chair Jerome Powell told Congress it was
critical banks have strong capital, but regulators must be
mindful of the tradeoffs.
WALL STREET CRACKDOWN
While the Basel rules were agreed years ago, the U.S.
regulations to comply with them are being drafted in the wake of
this year’s banking crisis in which deposit runs caused Silicon
Valley Bank and two other lenders to fail. The proposal is the
first major rule led by Fed Vice Chair for Supervision Michael
Barr, who has launched a sweeping review of capital rules and is
expected to be tough on Wall Street.
“The baseline has shifted to an assumption that the scale
and scope of the proposal is going to be far more punitive than
anyone expected at the end of last year,” said Isaac Boltansky,
director of policy research for brokerage BTIG.
Industry executives argue the bank failures were caused by
mismanagement and liquidity issues, and that system-wide capital
is already ample.
The proposal is also expected to apply stiffer capital rules
to smaller lenders with over $100 billion in assets, which would
include some that experienced liquidity problems this year,
three sources said.
Given investor jitters over the health of the industry and
the broader economy, bankers say, hiking capital now could
backfire, putting pressure on banks and hurting lending.
Republican officials at the agencies have flagged
similar concerns, two people said, while Republican lawmakers on
Wednesday also raised worries over capital rules with Powell.
“It’s extremely important for the agencies to be mindful of
the economic costs at a time of great uncertainty,” said Kevin
Fromer, CEO of the Financial Services Forum whose members, the
country’s largest eight banks, have roughly $900 billion in
common equity capital.
“It’s not in the interest of the U.S. economy to raise
capital requirements on institutions that are already
well-capitalized.”
The Fed is drafting the Basel rules with the Office of the
Comptroller of the Currency (OCC) and Federal Deposit Insurance
Corp. (FDIC). Regulators had hoped to unveil the proposal this
month but staff are still working on the draft and the timeline
has slipped to later in July, five people said.
The FDIC and OCC declined to comment. In a speech on
Thursday, FDIC Chairman Martin Gruenberg said regulators would
propose the Basel rules soon but will likely not complete them
before the middle of 2024.
Speaking to reporters last week, acting Comptroller
Michael Hsu said banks had “not been shy about sharing their
concerns” which regulators were taking into account.
(Reporting by Pete Schroeder; additional reporting by Niket
Nishant, Lananh Nguyen, Tatiana Bautzer and Michelle Price;
Editing by David Gregorio and Michelle Price)
