Bank groups said that although the Federal Reserve’s eased capital plans are a major improvement over previous versions, the recent proposals still need changes to help avoid risk assessments they say may hinder banks’ ability to boost lending.
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Heads of the Washington-based Bank Policy Institute and the Mortgage Bankers Association, among others, testified on Tuesday at a House hearing about the proposals, which are largely viewed as a win for Wall Street.
“The result will be a capital regime that better reflects risk and allows bank capital to be allocated more efficiently,” BPI President Greg Baer said in prepared remarks, but added there are a “variety of assets or exposures where the proposal overstates the risks.”
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Over the past year, President Donald Trump’s regulators have worked to relax banking regulations. Those plans include a major package of proposals unveiled in March that would lower the surcharge for the biggest US banks and increase capital requirements tied to Basel III, an international accord that is intended to prevent future bank failures.
The Fed has said that when combined the recent proposals are expected to result in a “moderate decrease” in capital requirements for some banks. That is a stark change from a 2023 plan to significantly hike capital requirements, which was never finalized.
Some officials and consumer advocates have criticized the plans, with Fed Governor Michael Barr calling the proposed reductions in capital requirements “unnecessary and unwise.” Barr previously served as the Fed’s top bank cop.
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Fed Vice Chair for Supervision Michelle Bowman, who spearheaded the recent effort, told Wall Street leaders earlier this month to support the proposals and stop asking for carve outs, Bloomberg reported last week. Instead, banks like JPMorgan Chase & Co. and Citigroup Inc. have criticized some of the measures.
Mayra Rodríguez Valladares, a financial risk consultant who previously worked at the New York Fed, expressed concerns about overall capital levels and the impact of the plans.
“One must ask: who, precisely, benefits from these proposals,” Rodríguez Valladares said in prepared remarks. “Academics, independent analysts, and I have scrutinized these proposals carefully and found little credible, quantifiable evidence that they will increase bank lending — including mortgage lending, the specific benefit most frequently cited to justify them.”
Still, Baer said that finding the right balance is hard.
“The challenge of bank regulation is to say where on the risk spectrum are we, and how granular do we want to be in assessing those risks,” Baer said.