US banks push back as regulators prepare international capital hikes
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[June 22, 2023] By
Pete Schroeder
WASHINGTON (Reuters) - U.S. banks are pushing to soften a major
regulatory proposal to hike bank capital requirements, worried it could
prove too onerous, especially for lenders still reeling from the March
banking crisis, according to six people briefed on the matter.
Bank regulators led by the U.S. Federal Reserve are finalizing the
proposal which would implement international capital standards agreed by
the Basel Committee on Banking Supervision in the aftermath of the
2007-2009 financial crisis.
Bankers are particularly concerned by an aspect of the draft proposal
that would apply higher capital charges on non-interest revenue, such as
the fees lenders charge on credit cards or investment banking services.
That capital charge is part of the package agreed by the Basel Committee
in 2017, but the industry says it overstates the risk for banks that
have a high proportion of non-interest income and had hoped U.S.
regulators would mitigate its impact, the people said.
Bank groups are pushing for regulators to cap the proportion of assets
on which such charges would apply, said three people, but it was unclear
if the agencies would take that approach.
Non-interest services income has been a key focus of many lenders'
growth strategies in recent years, one industry official noted.
American Express, Morgan Stanley and the U.S. units of UBS, Deutsche
Bank and Barclays are among banks with a high proportion of non-interest
income, according to a 2022 blog by Washington group the Bank Policy
Institute.
Barclays, Deutsche Bank, and Morgan Stanley declined to comment. UBS and
American Express did not immediately provide comment.
On Wednesday, Fed Chair Jerome Powell told Congress it was critical
banks have strong capital, but regulators must be mindful of the
tradeoffs.
WALL STREET CRACKDOWN
While the Basel rules were agreed years ago, the U.S. regulations to
comply with them are being drafted in the wake of this year's banking
crisis in which deposit runs caused Silicon Valley Bank and two other
lenders to fail. The proposal is the first major rule led by Fed Vice
Chair for Supervision Michael Barr, who has launched a sweeping review
of capital rules and is expected to be tough on Wall Street.
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The logo for Morgan Stanley is seen on
the trading floor at the New York Stock Exchange (NYSE) in
Manhattan, New York City, U.S., August 3, 2021. REUTERS/Andrew
Kelly/File Photo
"The baseline has shifted to an assumption that the scale and scope
of the proposal is going to be far more punitive than anyone
expected at the end of last year," said Isaac Boltansky, director of
policy research for brokerage BTIG.
Industry executives argue the bank failures were caused by
mismanagement and liquidity issues, and that system-wide capital is
already ample.
The proposal is also expected to apply stiffer capital rules to
smaller lenders with over $100 billion in assets, which would
include some that experienced liquidity problems this year, three
sources said.
Given investor jitters over the health of the industry and the
broader economy, bankers say, hiking capital now could backfire,
putting pressure on banks and hurting lending.
Republican officials at the agencies have flagged similar concerns,
two people said, while Republican lawmakers on Wednesday also raised
worries over capital rules with Powell.
“It’s extremely important for the agencies to be mindful of the
economic costs at a time of great uncertainty," said Kevin Fromer,
CEO of the Financial Services Forum whose members, the country's
largest eight banks, have roughly $900 billion in common equity
capital.
"It's not in the interest of the U.S. economy to raise capital
requirements on institutions that are already well-capitalized."
The Fed is drafting the Basel rules with the Office of the
Comptroller of the Currency (OCC) and Federal Deposit Insurance
Corp. (FDIC). Regulators had hoped to unveil the proposal this month
but staff are still working on the draft and the timeline has
slipped to later in July, five people said.
The FDIC and OCC declined to comment.
Speaking to reporters last week, acting Comptroller Michael Hsu said
banks had "not been shy about sharing their concerns" which
regulators were taking into account.
(Reporting by Pete Schroeder; additional reporting by Niket Nishant,
Lananh Nguyen, Tatiana Bautzer and Michelle Price; Editing by David
Gregorio and Michelle Price)
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