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Wall Street banks are pushing for Democratic support of a major overhaul of U.S. bank‑capital rules that the Federal Reserve is set to finalize by the end of the year. The changes, which would reduce the capital requirements for large banks by about 4.8 percent, are part of the Fed’s biggest regulatory revision since the 2007‑09 financial crisis. The Fed’s seven governors include four appointed by former President Donald Trump, and the bank’s vice chair for supervision, Michelle Bowman, is expected to seek bipartisan backing for the proposals. “Bipartisan consensus‑driven results stand the test of time much more often than not,” said Michael Bright, CEO of the Structured Finance Association, a trade group that represents many of the banks that would benefit from the relief. “I think that the market’s expectation is that they’re working to find overall consensus,” Bright added. Democrats, who are likely to win one or both chambers of Congress in the upcoming election, have expressed skepticism about deregulation. They have said they plan to investigate the Trump administration’s agencies and companies that have benefited from recent policy shifts. The banks are therefore weighing how to protect their gains if Democrats gain more power next year or if the party returns to the White House in 2028. The proposed rule changes follow a 2023 plan that raised capital requirements for big banks by 20 percent under former vice chair Michael Barr, a Democrat. Barr stepped down as vice chair early last year, reportedly to avoid a legal conflict with Trump, who was said to be planning to remove him from the role. Barr remains on the Fed board and has opposed Bowman’s proposal, arguing that it would increase systemic risk. Progressive Democrats and advocacy groups have echoed his concerns, although most other Democrats have not publicly weighed in. The other two Democratic‑appointed governors, Lisa Cook and Philip Jefferson, voted in favor of the proposals. Cook said the board would assess the final rules on their merits after reviewing feedback on how they would affect the economy and financial resilience. “It is critical that we strike the right balance,” she said. Some large banks are urging Bowman for additional relief, including further reductions to the “global systemically important bank” (GSIB) surcharge and changes to how unused credit‑card lines are treated under international Basel standards. Others want tweaks to eliminate overlap with other capital rules. However, cutting big‑bank capital further could jeopardize Democratic support. Bowman acknowledged the need for a compromise during congressional testimony in June, when lawmakers asked why the Fed had not adopted the industry’s preferred approach for recalibrating the GSIB surcharge in line with economic growth. “It was a compromise,” she said. “The industry approach would have reduced big‑bank capital to levels that some were uncomfortable with,” she added, a comment that executives interpreted as a reference to Cook and Jefferson. If the final rule is adopted with dissenting votes, it could be targeted by Democrats and litigants. University of Michigan law professor Jeremy Kress, who generally favors tougher rules, said that “were there to be two or more dissenting votes, it would delegitimize the final rule.” Dissents also provide grounds for lawsuits challenging the rulemaking process. Last month, Washington nonprofit Better Markets sued the Fed, alleging missteps in the capital rulemaking process. The Fed has not yet responded to the lawsuit. Article source: San Juan Daily Star | Image credit: San Juan Daily Star
Wall Street banks are pushing for Democratic support of a major overhaul of U.S. bank‑capital rules that the Federal Reserve is set to finalize by the end of the year. The changes, which would reduce the capital requirements for large banks by about 4.8 percent, are part of the Fed’s biggest regulatory revision since the 2007‑09 financial crisis. The Fed’s seven governors include four appointed by former President Donald Trump, and the bank’s vice chair for supervision, Michelle Bowman, is expected to seek bipartisan backing for the proposals. “Bipartisan consensus‑driven results stand the test of time much more often than not,” said Michael Bright, CEO of the Structured Finance Association, a trade group that represents many of the banks that would benefit from the relief. “I think that the market’s expectation is that they’re working to find overall consensus,” Bright added. Democrats, who are likely to win one or both chambers of Congress in the upcoming election, have expressed skepticism about deregulation. They have said they plan to investigate the Trump administration’s agencies and companies that have benefited from recent policy shifts. The banks are therefore weighing how to protect their gains if Democrats gain more power next year or if the party returns to the White House in 2028. The proposed rule changes follow a 2023 plan that raised capital requirements for big banks by 20 percent under former vice chair Michael Barr, a Democrat. Barr stepped down as vice chair early last year, reportedly to avoid a legal conflict with Trump, who was said to be planning to remove him from the role. Barr remains on the Fed board and has opposed Bowman’s proposal, arguing that it would increase systemic risk. Progressive Democrats and advocacy groups have echoed his concerns, although most other Democrats have not publicly weighed in. The other two Democratic‑appointed governors, Lisa Cook and Philip Jefferson, voted in favor of the proposals. Cook said the board would assess the final rules on their merits after reviewing feedback on how they would affect the economy and financial resilience. “It is critical that we strike the right balance,” she said. Some large banks are urging Bowman for additional relief, including further reductions to the “global systemically important bank” (GSIB) surcharge and changes to how unused credit‑card lines are treated under international Basel standards. Others want tweaks to eliminate overlap with other capital rules. However, cutting big‑bank capital further could jeopardize Democratic support. Bowman acknowledged the need for a compromise during congressional testimony in June, when lawmakers asked why the Fed had not adopted the industry’s preferred approach for recalibrating the GSIB surcharge in line with economic growth. “It was a compromise,” she said. “The industry approach would have reduced big‑bank capital to levels that some were uncomfortable with,” she added, a comment that executives interpreted as a reference to Cook and Jefferson. If the final rule is adopted with dissenting votes, it could be targeted by Democrats and litigants. University of Michigan law professor Jeremy Kress, who generally favors tougher rules, said that “were there to be two or more dissenting votes, it would delegitimize the final rule.” Dissents also provide grounds for lawsuits challenging the rulemaking process. Last month, Washington nonprofit Better Markets sued the Fed, alleging missteps in the capital rulemaking process. The Fed has not yet responded to the lawsuit.
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