WASHINGTON (Reuters) – Big U.S. banks plan to review other U.S. capital rules, industry executives said, emboldened by a friendlier approach by the Trump administration and their success in curbing capital growth last year.
Among the industry’s goals are locking in a weaker version of the “Basel Endgame” capital rule, reducing the capital surcharge charged on global banks, reworking the key leverage limit and overhauling the Federal Reserve’s annual “stress tests.” A bank may not be able to withstand an economic shock, said three executives with knowledge of the ambitious lobbying plan.
In President-elect Donald Trump’s first term, global U.S. banks won some regulatory wins, including easing trading rules and simplifying stress tests, but fell short of a hoped-for comprehensive overhaul of big bank capital rules implemented after 2007. 2009 global financial crisis.
The rules aim to prevent another crisis by requiring the biggest US banks, including JPMorgan Chase ( JPM ), Bank of America ( BAC ) and Goldman Sachs ( GS ), together to set aside about $1 trillion to absorb potential losses on loans and trades. Banks say demand is excessive and poorly calibrated, and that some of that cash could be better served by lending out some of that cash.
The industry won a partial victory last year after intense lobbying succeeded in halving the additional capital banks would have to hold under the Basel proposal and prompted the Fed to review its stress-testing process.
Buoyed by those victories and Trump’s appointment of new industry-friendly officials, including a new Federal Reserve regulatory chief about 18 months earlier than expected, banks see a unique opportunity to reshape capital rules, the people said. All three requested anonymity to discuss ongoing regulatory matters.
Speaking during earnings on Wednesday, Goldman Sachs CEO David Solomon, who has lobbied hard to dilute Basel, said he expected the change in administration to lead to a new approach to capital rules.
“We are in an environment where we can have a constructive discussion about improving transparency, clarity and consistency around this,” he said.
After years of criticism over the financial crisis, big banks feel they are done apologizing, executives say. They show how big banks weathered the COVID-19 pandemic and their role in stabilizing regional banks during the turmoil of 2023, showing they are resilient and don’t have to endure tougher regulations.
“All we want is a coherent, rational, comprehensively evaluated regulatory framework that allows the bank to do its job reflexively to support an economy that is not anti-bank,” JPMorgan CFO Jeremy Barnum said during earnings on Wednesday.
“Hopefully we’ll get some of that.”
Boosting the industry’s confidence is a judiciary increasingly skeptical of overzealous regulators — notably a June Supreme Court decision that overturned a 1984 precedent calling on courts to defer to agency interpretations of vague laws. The Fed cited the evolving legal landscape in announcing the stress test review.
“The ball swings back and forth in terms of who has more power,” said Ed Mills, a Washington political analyst at Raymond James. “That pendulum has now swung back to the banks. It’s been about a 15-year shift.”
Spokesmen for Bank of America, Goldman Sachs and JPMorgan had no comment.
In an interview with Reuters, Michael Hsu, the acting Comptroller of the Currency, the top bank regulator, said it was reasonable to question how capital was allocated, but the total amount in the system was “correct”.
“Either way … you turn all the dials down and then zoom out and say, ‘uh-oh, we ended up with a weaker system,'” warned Hsu.
The industry has been making ground for months with Republican regulators poised to replace Biden’s agency chiefs, and will continue to garner support from Republican lawmakers who narrowly control Congress.
Banks are currently lobbying to advance a weaker Basel draft that overhauls the way risk is measured. The Fed’s regulatory chief, Michael Barr, said last year that the revised draft would increase capital by about 9%, compared with the original 19%, but lenders hope to bring that number closer to zero, the sources said.
Banks widely agree that it is better to be stuck with a weaker administration under Trump than to have regulators halt the project and risk a future Democratic administration bringing back a tougher version. Speaking at a conference last month, Bank of America CEO Brian Moynihan said regulators should end Basel with little impact, rather than “leaving it open.”
Barr also proposed changes to the capital add-on for U.S. global systemically important banks, or GSIBs, last year that would reduce the $230 billion it has forced those lenders to set aside. But banks still want several other amendments that would further reduce the burden, the people said.
They also want to amend the Fed’s “extra leverage ratio,” which directs banks to hold capital against investments regardless of their risk, exempting super-safe assets like Treasuries or certain deposits from its calculation.
This leverage ratio and GSIB addition have been on banks’ hit lists for years, as have the Fed’s stress tests. A day after the Fed said it would review those tests, lenders sued the central bank to increase the transparency of the tests, though they said they hoped to settle the issue out of court.
So far, the signs look positive for lenders. Republican Fed Governor Michelle Bowman, the leading candidate to replace Barr, has criticized his work and called for “pragmatic” oversight.
Travis Hill, a perennial front-runner to take over as chairman of the Federal Deposit Insurance Corporation next week, said last week that Basel’s overhaul should be expanded to include other capital issues.
Spokesmen for the Fed and the Federal Deposit Insurance Corporation declined to comment.
(Reporting by Pete Schroeder; Editing by Michelle Price and Nia Williams)
