WASHINGTON, Sept 11 (Askume) – U.S. bank investors, analysts and executives on Wednesday tried to assess the impact of revised capital requirement hikes on banks as the Federal Reserve and other regulators released a number of specific details. Of course, the presidential election is also a big issue.
Federal Reserve supervisory chief Michael Barr on Tuesday outlined a plan to raise big banks’ capital by 9%, relaxing a previous proposal to raise capital by 19%. This is a major concession to Wall Street banks, which had lobbied for a reduction in the Basel draft.
The central bank is expected to release a new version in the coming weeks and begin listening to feedback from the industry.
Despite the apparent win for the industry, analysts, executives and two regulatory sources said the plan remains mired in uncertainty, with key details unclear and the Nov. 5 election raising doubts about its ability to be implemented under a new presidential term.
Speaking on Tuesday at the Brookings Institution, a Washington think tank, Barr said he was in no hurry to finalize the rules before the election. Democratic Vice President Kamala Harris has called for tighter bank regulations, while Republican Trump has promised to cut red tape .
Analysts and industry executives say that if Trump wins, he could soon appoint Republican officials to banking agencies, which could halt the entire plan, while a Harris administration would almost certainly finalize or otherwise strengthen the plan.
“The fate of this proposal is closely tied to the presidential election,” said Ian Katz, managing director at policy research firm Capital Alpha Partners. “Basel may be possible under Republican regulators, but it will almost certainly be different and easier for banks.”
The revised plan failed to boost bank stocks on Tuesday, with the S&P 500 bank index (.SPXBK) closing down 2.88% due to concerns about economic growth, the Federal Reserve’s move to cut interest rates and the outlook for bank profits.
“The new capital requirements are significantly lower than originally proposed,” Brian Mulberry, a portfolio manager at Zacks Investment Management, which owns several bank stocks, wrote in an email. “[This] should make people think about better profits. Getting bigger.
At public events in Washington and in talks with lawmakers and regulators, Wall Street banks have argued that excessive capital reserves are unnecessary and harm the economy. They threatened to sue to overturn the final rule, arguing that the US central bank and other agencies failed to follow proper procedures.
In response, Federal Reserve Chairman Powell said this summer that regulators would make “significant” changes and that a new draft should be resubmitted for public comment. Askume reported in June that Fed officials were in a dispute with their counterparts at the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) over finalizing the rule before the election .
Although Barr said Tuesday that the Fed’s Board of Governors would vote in favor of his revised plan, it was unclear whether the OCC and FDIC would do so as well. FDIC Chairman Martin Gruenberg and acting Comptroller Michael Hsu said in separate statements that Barr’s plan reflected their joint work on revising the proposal and that the two men were committed to ensuring the work was completed. They did not say how they would proceed.
Jonathan McCarran, a Republican member of the Federal Deposit Insurance Corporation (FDIC) board of directors, told Askume he would not vote for the bar association’s plan because it does not go far enough to address all the problems. Lawyers say if the proposal is presented in a confusing or unconventional way, it would leave the final rule vulnerable to litigation.
Raymond James analyst Ed Mills wrote that “potential legal challenges and a post-election finalization deadline” make the rule’s future uncertain. Still, he said, “the proposals presented today should be viewed as positive for the banking industry.”
Industry groups did not declare victory Tuesday, a sign of the uncertainty and the huge capital hikes banks still face. Most said they would study the new draft once it’s released. They spent a year fighting the Fed over the specifics of the rule, arguing that the central bank had significantly underestimated the capital burden on big lenders.
The new draft outlines sweeping changes to how banks measure credit, market and operational risks, but officials and regulatory sources say the exact wording will determine which banks win or lose depending on each bank’s business model.
“The complexity of the proposal lies in its details and we need to see the actual proposal before we can make a final assessment of its impact,” Mills said.
