Federal banking regulators are preparing to release a set of proposals to loosen requirements on how much capital banks have to hold to protect against losses.
In a speech on Thursday at a Cato Institute policy gathering, Michelle W. Bowman, the Federal Reserve’s vice chair for supervision, said that the new rules would eliminate capital calculation requirements that she called duplicative and adjust them in relation to banks’ trading activities and mortgage lending.
The changes would modify a set of rules known as “Basel III endgame” — a long-running and closely watched effort to implement an international regulatory framework hashed out in Switzerland nearly a decade ago.
Intended to mitigate the kinds of risks that contributed to the 2008 financial crisis, Basel III has been the target of intense lobbying by banks and their trade groups, which have warned about overly strict capital requirements that constrain lending to businesses and households.
Capital requirements force banks to hold assets, such as cash, as cushions against future losses. Banks like to keep those buffers as small as possible, freeing up more money for them to lend and invest.
Officials at the Fed, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency plan to jointly release their new proposals as soon as next week.
The planned changes to the Basel III rules follow other Trump administration moves to alter banking rules in ways that supporters say will cut unnecessary red tape and unlock capital for investment. Critics fear the changes will leave regulators less able to spot a brewing crisis, and banks less able to withstand one.
In a joint statement on Thursday, three banking trade groups praised Ms. Bowman’s comments about the intended Basel III changes.
“We have consistently called for a capital framework that reflects the actual risks in the banking system, rather than over-calibrated requirements that impede economic growth and unnecessarily drive up costs,” the American Bankers Association, the Bank Policy Institute and the Financial Services Forum said. “The capital proposal outlined today suggests a welcome focus on risk-sensitivity and a comprehensive view.”
Senator Elizabeth Warren of Massachusetts, the ranking Democrat on the Senate Banking Committee, criticized the changes as a capitulation to industry lobbying.
“Trump’s bank regulators, once again, are handing the big banks exactly what they want — a weak rule that fails to address the severe flaws in the capital framework that were never fixed after the 2008 financial crisis, leaving our entire economy at risk,” she said.
Regulators also plan to propose changes to a capital requirement surcharge imposed on institutions deemed “global systemically important banks.” That “G-SIB” designation currently applies to 29 banks.
The regulators’ Basel III proposal would lead to “a small increase” in capital requirements for the largest banks, but their suggested changes to the surcharge on G-SIBs would result in “a modest decrease,” Ms. Bowman said. Together, she said the changes would decrease the largest banks’ capital requirements “by a small amount.”
Regional banks would see a larger decrease in capital requirements, Ms. Bowman said, which would “provide flexibility to provide credit to U.S. households and businesses.”
Three years ago, a series of regional bank failures — which began with the collapse of Silicon Valley Bank, a tech industry lender that was felled by a deluge of withdrawal requests that plunged it into insolvency — rattled the banking industry. Some experts worry that easing asset requirements for such banks could increase the risk of a recurrence of those kinds of wipeouts.
Stacy Cowley is a Times business reporter who writes about a broad array of topics related to consumer finance, including student debt, the banking industry and small business.
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