The Federal Reserve "softens"! Did Wall Street win this time?

According to sources, after US regulatory agencies agreed to comprehensively revise the proposed package of rules, the capital surcharge requirements facing eight large US banks, including Bank of America and Morgan Stanley, will be halved from 19% to 9%. The initial plan by the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency required the eight US global systemically important banks (including Bank of America and Morgan Stanley) to increase capital by 19% as a buffer against unexpected losses and financial shocks. Significantly reducing capital requirements is more likely to appease banks, which launched one of their most intense lobbying efforts after the proposal was announced last year. The proposed revisions may also help Federal Reserve Chairman Powell achieve his goal of broad support from the Federal Reserve Board. A Federal Reserve representative declined to comment. According to Bloomberg, the three regulatory agencies are expected to release revisions of up to 450 pages by September 19. The capital reforms announced in July 2023 are linked to Basel III, an international agreement that began over a decade ago in response to the 2008 global financial crisis. The Federal Reserve later presented a significantly weakened version of the plan to other regulatory agencies, which raised concerns among some officials. The weakened version suggests an overall capital surcharge increase of only 5% for a large number of US banks, lower than the approximately 16% level in the initial proposal. The plan to be outlined on Tuesday may undergo a 60-day comment period, with Powell stating that final approval may not come until "the end of next year." Jeremy Kress, former Federal Reserve banking policy lawyer at the University of Michigan, said banks are almost certain to request an extension of the 60-day deadline, but this is just a risk. Kress added, "A Trump victory could also jeopardize its implementation, as a Republican-controlled Congress could overturn the rule through Congressional Review Act resolutions, or banking institutions could delay compliance dates and ultimately abolish the rule." There is no guarantee that all banks will be satisfied with the smaller overall capital growth, as industry members have expressed a range of concerns from how trading risks are handled to how the proposal interacts with annual stress tests. However, individually, a company may be unwilling to mount a legal challenge alone. Mayra Rodriguez Valladares, a financial risk and banking consultant who previously worked at the New York Fed, said: "It is highly unlikely for a bank to fight the entire industry alone, which may be of no help to the lender."