Wall Street Wins as Powell Resets Bank Capital Plan

After Federal Reserve Chair Jerome Powell hinted regulators will roll back plans to have Wall Street banks retain more capital, they are close to a regulatory victory. The world's most powerful central banker told legislators Wednesday that the government's plan will undergo “broad and material changes,” and a total do-over was feasible. Powell's statements surprised even veteran industry lobbyists and cast doubt on a Biden-era regulation push.

Beyond the capital rule, Powell's comments show the banking industry's power in Washington a decade after the Global Financial Crisis. Industry organizations have spent months lobbying against the plan, including CEO appearances, sports game TV ads, and a bombardment of remarks.

“It is unlike anything I have seen,” Powell told the House Financial Services Committee regarding plan comment letters. 97% of more than 300 comment letters cited major problems with the overall plan or critical sections of it, according to bank-client law firm Latham & Watkins. The Fed, FDIC, and OCC proposal is related to Basel III, a decade-old international overhaul. Supporters claim it will address issues raised by Silicon Valley Bank and Signature Bank collapses.

Michael Barr, Fed supervisory vice chair, has led the endeavor. Barr has indicated he's open to revisions but defends the agencies' initial approach to prepare banks for disasters. Powell's Wednesday comments overshadowed his intended statements on monetary policy and the US economy.

Powell, Barr, and other senior Fed officials must approve a final plan before the rules take effect. Powell, Biden-appointee, and Fed vice chair Philip Jefferson raised qualms, but the initial plan passed extremely close 4-2. The Fed chair selects when to bring a measure to voting members, and the FDIC and OCC must approve a final version.

Powell's direct admission that the proposal may be revised stunned Capital Alpha Partners regulatory policy analyst Ian Katz. “The vice chair of supervision should lead regulatory and supervisory matters,” he stated. “He drives the bus unless the chair and other members think he has gone too far off the main road.”

December Senate Banking Committee testimony from Wall Street's top banks' CEOs was hostile. One by one, executives assured lawmakers their institutions were safe and that stricter rules would hurt regular Americans. November elections raise political stakes. A Republican takeover, who have generally supported the business, would further stifle the attempt.

Kathryn Judge, a Columbia Law School professor who advised the Treasury Department's Office of Financial Regulation under Obama, termed Powell's comments “disheartening.” She stated that “modifying a rule in light of feedback is quite different than abandoning it entirely.”

Supporters of the July proposal claim the plan's increased criteria will barely affect borrowing and that most institutions have enough capital to meet them. The industry is expected to break its own profit record in 2023, the year of three of the four largest bank failures. Government officials said the July plan will grow the eight largest banks by 19% and lenders between $100 billion and $250 billion by 5%.