(Bloomberg) -- The Federal Reserve’s revamped capital proposals significantly dialed back mandates for the biggest US banks. But that doesn’t mean lenders are necessarily going to accept the changes.
The banking industry says it still has concerns about the process and analysis behind the overhauled plan, which roughly sliced in half the 19% capital hike that regulators had planned for the eight biggest banks. The Bank Policy Institute, which represents firms including JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp., said regulators should work on a bottom-up evaluation of every aspect of the rule to ensure the new number is “not just a haircut on faulty math of the original proposal.”
The sharp reduction to the planned capital increase — announced by Fed Vice Chair for Supervision Michael Barr on Tuesday — followed a fierce bank-lobbying campaign against the original proposal introduced last year. The complete reproposal, negotiated among the Fed, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, may be released as soon as Sept. 19, followed by a 60-day comment period.
The revisions were immediately met with some skepticism. Bank of America Chief Executive Officer Brian Moynihan said the new proposals could be a case of “show them death and they’ll take despair.”
“I sometimes feel that that’s what we just got,” he said at a conference on Tuesday. “They showed us 20 and they’re saying, take 10. Let’s think about the logic in that.”
Morgan Stanley Co-President Dan Simkowitz also said Tuesday that while the changes were needed, he’s not sure they’ll be sufficient.
A representative for the Fed declined to comment.
Stiff Resistance
Following the stiff resistance from banks, Barr and Fed Chair Jerome Powell had promised that regulators would make “broad and material” changes to the capital plan. In July, Powell attended a closed-door meeting with a group of big-bank CEOs, encouraging them to work with the Fed to avoid a years-long legal battle over the proposal.
The latest revisions don’t necessarily stave off legal action from the banks, people familiar with the matter said, asking not to be identified discussing a private matter. Banks will need to digest the proposed changes and see how they affect their respective businesses, one of the people said.
Another concern is how the proposals interact with annual bank stress tests and the global systematically important bank, or GSIB, surcharge — a capital buffer the Fed requires the biggest US banks to hold on top of other capital requirements. Agencies must take into account “the extraordinary overlap” between these, the BPI said.
“The original process lacked a cost-benefit analysis, full transparency and recognition of the interconnectedness of capital requirements,” the BPI said in its statement. “It remains to be seen if this reproposal is the result of a better process.”
The proposal is tied to Basel III, an international accord that followed the 2008 financial crisis and is intended to prevent future bank failures. Some supporters of the US proposal have also billed it as a fix for some of the issues exposed by the collapses of Silicon Valley Bank and Signature Bank in March 2023. Banks have argued that the measures would divert money away from lending from businesses, ultimately harming the economy.
Moynihan repeated those criticisms on Tuesday, noting that the proposals were introduced into an economy that’s grown and weathered storms.
“We’ll have to see where it shakes out and we’ll see what the reaction is for the industry,” Moynihan said. “But it just kind of boggles my mind sometimes.”
--With assistance from Todd Gillespie, Hannah Levitt and Katanga Johnson.
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