US banks warn stricter capital rules will raise prices
Send a link to a friend
[July 17, 2023] By
Pete Schroeder and Nupur Anand
WASHINGTON/NEW YORK (Reuters) -U.S. bank executives warned on Friday
that looming higher capital requirements would raise prices for
financial products and push activity into less regulated sectors as
regulators weigh new rules to cushion against any potential losses.
Federal banking regulators are expected to introduce proposals in the
coming weeks requiring banks to keep more cash on hand to ensure the
financial system remains stable. Federal Reserve Vice Chair for
Supervision Michael Barr said this month that large firms need to hold
more in reserve to guard against unknown risks.
While detailed plans have not been announced, bank executives are
already sounding warnings about the potential drawbacks.
"Higher capital requirements definitely increase the cost of credit,
which is bad for the economy," Jeremy Barnum, JPMorgan Chase's chief
financial officer, said on a conference call on Friday after the bank
reported its second quarter earnings.
The nation's largest lender may increase prices or abandon some products
as a way to offset the higher capital costs, Barnum said.
One key new expected rule would require banks to hold more capital
against certain trades. JPMorgan officials also told investors that the
bank would likely have to drop a derivatives product tied to the U.S.
Treasury yield curve as a result, since it would no longer be
economical.
![](http://archives.lincolndailynews.com/2023/Jul/17/images/ads/current/guzzardos_sda_HEROS_2023.png)
The rules could have more significant consequences for mortgages, which
could be "harder to offer the homeowners," JPMorgan officials said.
The Fed and other banking regulators are preparing to implement new
risk-weighted requirements outlined in international standards agreed by
the Basel Committee on Banking Supervision after the 2008 financial
crisis.
[to top of second column] |
![](../images/071723PIX/busine89.jpg)
The exterior of the Marriner S. Eccles
Federal Reserve Board Building is seen in Washington, D.C., U.S.,
June 14, 2022. REUTERS/Sarah Silbiger/File Photo
![](http://archives.lincolndailynews.com/2023/Jul/17/images/ads/current/fcs_funeral_lda_border_04029022.png)
Meanwhile, banks are staying cautious and preserving capital until
there is more clarity around the rules.
"There's a lot of uncertainty out there about the new capital
requirements, both in terms of the nature of them and the timing of
implementation," Citigroup's CEO Jane Fraser said in a separate
post-earnings conference call on Friday.
Wells Fargo was expecting capital requirements to climb and weighing
the potential effect on stock buybacks, CEO Charlie Scharf told
investors on its call.
Industry lobbyists in Washington are also pushing back against more
stringent rules. One particular area of concern is the potential
application of capital charges on non-interest revenue, which
include fees lenders charge on credit cards or investment banking
services.
If regulators impose more onerous restrictions on banks, executives
said activity would drift to more lightly regulated financial
middlemen, with the potential for Blackstone and Apollo to benefit.
Shares of both have risen sharply in recent days.
Apollo and Blackstone were not immediately available for comment.
"This is great news for hedge funds, private equity, private credit
-- and they're dancing in the streets," JPMorgan Chase CEO Jamie
Dimon told investors.
(Reporting by Pete Schroeder in Washington and Nupur Anand in New
York; Additional reporting by Saeed Azhar and Tatiana Bautzer in New
York; Editing by Lananh Nguyen, Megan Davies and Susan Heavey)
[© 2023 Thomson Reuters. All rights
reserved.]
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |