WASHINGTON (Reuters) – Encouraged by a friendlier incoming Trump administration and their success last year in watering down draft capital raises, major U.S. banks plan to push for an overhaul of other U.S. capital rules, industry executives said .
Industry goals include enshrining a much weaker version of the Basel Endgame capital rule, reducing a capital surcharge levied on global banks, reworking a key leverage constraint, and revising the Federal Reserve’s annual “stress tests,” which measure whether a bank could withstand an economic shock, said three executives with knowledge of the ambitious lobbying plan.
Under newly elected President Donald Trump’s first term, global U.S. banks scored some deregulation victories, including relaxing trade rules and simplifying stress tests. Global financial crisis of 2009.
These rules aim to prevent another crisis by requiring the largest US banks like JPMorgan Chase (JPM), Bank of America (BAC) and Goldman Sachs (GS) to collectively forgo nearly $1 trillion to cover potential losses on loans and trade. Banks say the demands are excessive and poorly tailored, and that some of that money could better serve the economy by being loaned out.
The industry tasted a partial victory last year after intense lobbying succeeded in halving the additional capital banks would have to hold under the Basel proposal, prompting the Fed to overhaul its stress-testing process.
Buoyed by these victories, and with Trump set to appoint new industry-friendly officials — including a new Federal Reserve regulator nearly 18 months earlier than expected — banks see a unique opportunity to reform capital rules, the people said. All three requested anonymity to discuss ongoing regulatory issues.
David Solomon, CEO of Goldman Sachs – who lobbied hard to weaken Basel – said during his earnings call on Wednesday that he expected the change in government to lead to a new approach to capital rules.
“It feels like we’re in an environment where there can be a constructive discussion about improving the transparency, clarity and consistency around this,” he said.
After years of criticism over the financial crisis, major banks feel they are done apologizing, executives say. They point to the way big banks weathered the COVID-19 pandemic and their role in stabilizing regional banks during the 2023 turmoil as evidence that they are rock solid and will not have to tolerate tougher regulations.
“All we want is a coherent, rational, holistically assessed regulatory framework that allows a bank to do its job and support the economy that is not reflexively anti-banking,” JPMorgan CFO Jeremy Barnum said during earnings calls on Wednesday.
“The hope is that we get some of that.”
Adding to industry confidence, the judiciary is becoming more skeptical of overzealous regulators — especially a June Supreme Court ruling that overturned a 1984 precedent calling for courts to defer to agency interpretations of ambiguous laws . The Fed cited this evolving legal landscape when announcing the stress test review.
“The pendulum swings back and forth when it comes to who has the most power,” said Ed Mills, a Washington policy analyst at Raymond James. “That pendulum has now swung back to the banks. This is a shift about fifteen years in the making.”
Spokespeople for Bank of America, Goldman Sachs and JPMorgan had no comment.
In an interview with Reuters, acting currency regulator Michael Hsu said it was reasonable to question how capital is allocated, but that the total amount in the system was “about right.”
“On a case-by-case basis, you turn all the dials down, zoom out and say, ‘uh-oh, we ended up with a much weaker system,’” Hsu warned.
The industry has been laying the groundwork for months for Republican regulators poised to replace the heads of Biden’s agencies, and will continue to rally support from Republican lawmakers who closely control Congress, the people said.
Banks are currently lobbying to put forward a weaker Basel draft, which overhauls the way they assess risk. Michael Barr, head of Fed regulators, said last year that a revised design would increase capital by about 9%, up from 19% originally, but lenders hope to bring that figure closer to zero, sources said.
Banks broadly agree that enacting a weaker rule under Trump is better than letting regulators shelve the project and risk a future Democratic administration reintroducing a stricter version, the officials said. people. Bank of America CEO Brian Moynihan said at a conference last month that regulators should finalize Basel with little impact rather than “leave it open.”
Barr also proposed changes last year to a capital surcharge for U.S. global systemically important banks, or GSIBs, that would reduce the $230 billion these lenders must set aside. But banks still want some other adjustments that would further reduce burdens, the people said.
They also want adjustments to the Fed’s “supplemental leverage ratio,” which encourages banks to hold capital for investments regardless of risk, by exempting super-safe assets like Treasury bonds or certain deposits from its calculation.
That leverage ratio and the GSIB surcharge have been on banks’ hit list 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 transparency of the tests, though they have said they hope to resolve the issue out of court.
So far, the signs appear positive for lenders. Republican Fed Governor Michelle Bowman, one of the leading candidates to replace Barr, has criticized his work and called for “pragmatic” oversight.
Travis Hill, who will become acting chairman of the Federal Deposit Insurance Corporation next week and is permanently a top candidate for the role, said last week that the Basel review should be expanded to other capital issues.
Spokespeople for the Fed and the Federal Deposit Insurance Corporation declined to comment.
(Reporting by Pete Schroeder; Editing by Michelle Price and Nia Williams)