After a yearslong war of words, regulators on Tuesday watered down an effort to layer new oversight on banks, all but conceding that they had reached too far.
Debate over new rules intended to make the banking industry safer has rumbled for more than a decade. Known as “Basel III endgame” because they were first agreed to at a global confab in that Swiss city, the rules would have raised the amount of capital banks were required to maintain, funds intended to ensure stability and provide a thicker financial cushion.
The problem, as bank chiefs and industry lobbyists have not hesitated to point out, was that stricter rules might force them to crimp lending. The industry assembled an unlikely coalition of community groups and racial advocate groups to argue that the standards would make it more difficult for low-income borrowers to be approved for mortgages and other financial services.
The newly proposed rules will largely erase extra rules on banks that have between $100 billion and $250 billion in assets, a category that includes many of the midsize lenders at the center of last year’s banking crisis. They also slash in half the capital reserve requirements on the largest, so-called systematically important financial institutions such as JPMorgan Chase and Bank of America.
The modifications to earlier proposals are also intended to treat some types of bank activities, such as modest credit-card balances and loans to pension funds, as relatively safe in the eyes of regulators.
Michael S. Barr, the Federal Reserve vice chair who is no favorite of the bank lobby, acknowledged the blowback in a speech laying out the changes. “Capital has costs, too,” he said at the Brookings Institution in Washington. In its statements pushing against the rules over the years, the banks’ main lobbying organization has said “capital isn’t free.”
“Life gives you ample opportunity to learn and relearn the lesson of humility,” Mr. Barr said. The changes must be jointly agreed upon by the Fed, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
It remains to be seen if the changes will satisfy big banks’ complaints. The proposal retains some elements of a crackdown on trading activities — one of the crown jewels of profitability for investment banks. It asks banks to take additional measures of “unrealized” losses, or trading positions that have lost value but haven’t yet been sold. Banks generally resist that, arguing that markets move up and down but that investments can still pay off in the long run.
Some of the more vociferous critics of the earlier proposals, including JPMorgan’s chief executive, Jamie Dimon, and his counterpart at Goldman Sachs, David M. Solomon, declined to immediately comment on the changes. One of the industry’s principal lobbying groups, the Financial Services Forum, put out a statement saying it was in a wait-and-see mode.
“We look forward to reviewing the revisions and participating fully in the public comment process,” the forum’s president, Kevin Fromer, said in a statement.
There remains considerable work to be done before the proposal would be adopted. In addition to a monthslong period for outside feedback, other regulators will also weigh in.
And while Fed officials take pains to say they are apolitical, central bank governors are nominated by the president and confirmed by the Senate, meaning that the composition of the board could change after the election if members resign or, eventually, see their terms expire.
“We are not paying attention to the election,” Mr. Barr, nominated by President Biden, said in response to a question on the issue. That prompted the Brookings moderator, David Wessel, to crack: “You’re the only American who is not.”
The post After Fierce Lobbying, Regulators Soften Proposed Rules on Banks appeared first on New York Times.