(Bloomberg) -- A plan to dial back US regulators’ landmark bank-capital proposal is running into a wall of resistance at the Federal Deposit Insurance Corp.
At least three of five FDIC directors oppose the latest overhaul previewed by the Federal Reserve last week, according to people familiar with their thinking. Democrat Rohit Chopra has joined the two Republican board members, including Vice Chairman Travis Hill, against the changes, the people said.
Fed Chair Jerome Powell, when asked Wednesday about the other agencies’ buy-in, said the idea is “we’re all moving together,” with the goal of wrapping up the massive package in the first half of 2025. But the bipartisan pushback at the FDIC is again raising questions about how long and what it will take to get all three bank regulators on the same page.
Chopra, who’s also head of the Consumer Financial Protection Bureau, has privately described the sharp reduction in capital requirements as closer to a giveaway to Wall Street banks, the people familiar with his discussions said. Republican Jonathan McKernan has said he’s a resounding “no” and wants a full reproposal instead of a partial one.
“We’ve been too focused on reverse engineering a particular capital aggregate — first a significant increase in July 2023, and now, somewhere in between,” McKernan said.
Representatives for Hill and Chopra declined to comment. Spokespeople for the Fed and FDIC declined to comment.
The Fed, FDIC and Office of the Comptroller of the Currency unveiled the original draft in July 2023, sparking one of the industry’s fiercest lobbying campaigns. The new revisions previewed on Sept. 10 by Fed Vice Chair for Supervision Michael Barr would roughly cut in half the 19% capital hike that regulators had planned for the eight US global systemically important banks, including Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc. Those lenders would now face a 9% increase in the capital they must hold as a cushion against financial shocks.
The proposal is the US version of Basel III, an international accord intended to prevent future bank failures and another financial crisis. Some supporters have also billed the US effort as a fix for some of the flaws that led to the collapses of Silicon Valley Bank and Signature Bank last year. Critics say it could raise the costs of lending, hurt the economy and put US banks on weaker footing against international rivals.
Despite the planned retreat in capital mandates, Wall Street greeted the news with some skepticism. Morgan Stanley Co-President Dan Simkowitz said last week that he wasn’t sure the changes would be be sufficient. Bank of America Corp.’s chief executive officer, Brian Moynihan, said the latest proposal could be a case of “show them death and they’ll take despair.”
At the FDIC, the concerns helped delay tentative plans to hold an open meeting this week on the revised capital plan, according to two people familiar with the discussions. Bloomberg had reported that the regulators could release the text of the latest changes as early as Sept. 19.
The central bank’s lead role in crafting the 450 pages of revisions was seen as one-sided by some FDIC directors, some of the people said. They privately described the recent round of negotiations with the Fed as lacking a meaningful opportunity for them to weigh in on specific changes contributing to the lower capital hike, according to the people.
‘Working Together’
It’s unclear where the other two FDIC directors stand. Both Michael Hsu, acting head of the OCC, and FDIC Chairman Martin Gruenberg supported Barr’s comment on the joint effort involved in the proposed changes. Their statements on Sept. 10 didn’t reveal their stances on the new changes.
“The Federal Reserve, OCC and the FDIC have worked cooperatively on the Basel III proposal, including the changes outlined in Vice Chairman Barr’s remarks,” Gruenberg said last week. “I look forward to the agencies working together to bring Basel III to a conclusion that will strengthen bank capital and bolster financial system resilience and stability.”
Hsu said the revisions “reflect the work the three agencies undertook together” and that he’s “committed to working with my peers on next steps to drive the Basel 3 endgame to closure.”
Spokespeople for Gruenberg, Hsu and the OCC declined to comment.
Fed Governor Michelle Bowman also supported some of industry’s criticisms on Sept. 10 — raising questions about whether Powell will be able to get broad consensus he seeks from the central bank’s board. Bowman expressed concerns about whether Basel III requirements overlap with parts of stress testing and pushed for a full reproposal of the bank-capital plan.
“I think there’s too much opportunity for us to miss things by narrowly addressing only some of the issues that we are well aware of,” she said.
--With assistance from Reade Pickert.
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