During an appearance before Congress in March, Federal Reserve Chairman Jerome Powell called the comments in response to a July 2023 proposal to require large U.S. banks to increase their capital by 19% “enormous and very substantive.”
The same could be said 24 hours after Fed Vice Chairman for Oversight Michael Barr unveiled a revised version of his controversial proposal to cut the rate hike from 19% to 9%. Here are eight of his most important comments.
1. “10 is obviously better than 20” – Daniel Pinto, President of JPMorgan Chase
“The problem is we have no idea what they changed,” Pinto, the No. 2 executive at the country’s largest bank, said on Tuesday, according to Reuters.
Pinto said JPMorgan would carefully consider changes to how the revised proposal considers risks to the market.
“It’s not just about the overall numbers, it’s about the composition,” he said.
2. ““There’s an old saying that ‘show them death and they’ll despair,’ and sometimes it feels like that’s exactly what we have right now,” said Brian Moynihan, CEO of Bank of America.
Moynihan, who attended the same Barclays conference as Pinto on Tuesday, said a 10% increase in capital requirements would prevent Bank of America from making $160 billion in loans to small and mid-market businesses.
By that same measure, Moynihan said, “It’s OK. They can continue to buy back stock. But then you have successive Federal Reserve chairs saying this industry doesn’t have enough capital, and all of a sudden we need more capital.”
3. “On almost every count, this is a capitulation to the banks,” said Jeremy Kress, a professor at the University of Michigan.
Tuesday’s preview showed that, in percentage terms, the increase in capital requirements for the country’s largest banks would be less than half of what was proposed in July 2023. But Kress said, “this is not a neutral re-proposal,” according to the Financial Times.
4. “The revised bank capital standards are a kowtow to Wall Street,” Sen. Elizabeth Warren (D-MA)
Warren, the ranking member of the Senate Banking Committee, has long been a vocal critic of Powell and reiterated her argument on Tuesday that he is a “dangerous person” to run the Fed.
“After years of unnecessary delay, rather than strengthening the safety of the financial system, the Fed has caved in to lobbying by big bank executives,” she said.
5. “Financial regulators have not justified these changes or provided a comprehensive cost-benefit analysis,” said Sen. Tim Scott, R-South Carolina.
The ranking member of the Senate Banking Committee said he has consistently argued that the final Basel proposal would increase costs and reduce consumers’ access to credit. Tuesday’s announcement “only underscores that this proposal should be withdrawn and appropriately reproposed in its entirety,” Scott said, adding that he would “closely monitor these developments and look forward to engaging directly with financial regulators.”
6. “I Say No” – FDIC Commissioner Jonathan McKernan
It’s important to remember that the Basel plan is multi-agency and requires approval from the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency in addition to the Fed. The FDIC is scheduled to meet this month to consider the plan, Reuters reported, citing people familiar with the matter. Bloomberg reported last week that a revised plan could be released as soon as Sept. 19.
“We should reintroduce the whole thing,” McKernan, a Republican, told Bloomberg on Tuesday, “and I don’t understand how key aspects of this bill make sense conceptually.”
But the backlash from the FDIC was not comprehensive.
“The Federal Reserve, OCC and FDIC have been working collaboratively on the Basel III proposal, including the changes outlined in Vice Chairman Barr’s remarks,” FDIC Chairman Martin Grunberg, a Democrat, said in a statement on Tuesday. “I look forward to the agencies working together to ensure that Basel III reaches a conclusion that strengthens bank capital and enhances the resilience and stability of the financial system.”
Still, the biggest divide over increasing capital requirements is political.
7. “I don’t think the Fed would be stupid enough to do that,” Rep. Patrick McHenry (R-NC)
The chairman of the House Financial Services Committee is calling for a complete overhaul of the rules rather than a reproposition, and told the Financial Times that if final rules are passed before the next president takes office, lawmakers would invoke the Congressional Review Act to overturn them.
“if [regulators] “The highly politicized approach that Michael Barr has taken to regulatory policy would lead to Congress and the courts significantly limiting the Fed’s regulatory ability,” McHenry said Monday.
The clock is ticking since the Fed signaled it would release a revised version, and the nuclear option for Republican opponents is to try to repeal the rule even if Democrats finalize the plan before the White House transition in January.
8. “It’s disappointing to see a preview of the re-proposal that has yet to be released more than a year after this process began.” Katherine Judge, Professor, Columbia University
“Given the overall time frame, this is not the best position for the Federal Reserve or other bank regulators to be in,” Judge told the Financial Times..
