Big bank regulations get a makeover
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Last summer, the Fed's top bank cop proposed tougher rules to safeguard America's financial system.
- On Tuesday, that proposal, dubbed Basel Endgame, got a makeover — with less stringent requirements for big banks.
Why it matters: The big victory for the banks comes after an intense public relations campaign by the industry — and even pushback from some Democrats and Fed officials — who warned the tighter rules would cramp the flow of credit through the economy.
- Now, Fed vice chair for supervision Michael Barr is, in effect, retreating to move forward.
Zoom in: The most significant revision deals with banks' capital requirements — that is, how much of a financial cushion is needed to protect against losses and unexpected economic shocks.
- Regulators now propose capital requirements for the largest banks will increase by 9%, down from 19% put forward last year.
What they're saying: "There are benefits and costs to increasing capital requirements," Barr said in a speech Tuesday morning previewing the changes at the Brookings Institution.
- "The changes we intend to make will bring these two important objectives into better balance," Barr added.
The big picture: The proposal from the nation's trio of regulators — the Fed, the Office of the Comptroller of the Currency and the FDIC — was meant to bring the U.S. in step with international rules laid out more than a decade ago in the wake of the financial crisis.
- The initial version came out a few months after regulators were alarmed by the Silicon Valley Bank turmoil and the failures of several regional banks. But that crisis was short-lived and ultimately did not pose a systemic threat to the financial system.
- Barr said Tuesday that midsize banks — those with assets between $100 billion and $250 billion — will no longer be subject to many of the initial proposals.
- "When we were working on the 2023 proposal, we had very fresh in mind the March banking stress," Barr said in a Q&A after the speech. "When we were thinking about the various trade-offs and the calibration, how conservative to be — we were quite conservative."
The other side: The revisions are a relief for Wall Street lobbying groups that went as far as paying for primetime TV commercials to argue that banks were well-capitalized and the proposal was too draconian.
- Some Fed officials raised concerns banks would pull back on lending to low- and middle-income communities — or that those loans would be pricier. The rule required banks to hold more capital against loans with smaller down payments.
- That has been watered down. Barr said that these capital requirements would not change, or in some cases would be lower on average than it currently stands.
The bottom line: Barr's new proposal is designed to try to get stronger consensus among the seven-member Fed board of governors as well as the FDIC and OCC — and to face less legal pushback if implemented.
- The new proposal is an admission that officials saw the initial rule as tipped too much in one direction.
