Fed Announces Capital Relief Plan, Wall Street Banks Benefit

[Global Times Financial News] According to reports from Reuters and other foreign media, Michelle Bowman, Vice Chair responsible for regulation at the Federal Reserve, stated on Thursday local time that the revised banking capital rule draft will slightly reduce capital requirements for large banks, providing a policy boost for Wall Street banks, which previously faced about a 19% increase in capital requirements in the 2023 draft.

(Image source: Reuters)

The Federal Reserve said it will vote on the proposal at next week’s board meeting. This adjustment is part of the capital reform framework, mainly optimizing rules related to Basel agreements and GSIB surcharges, aiming to better align capital requirements with actual risks. Regulators are also relaxing related leverage ratio requirements and increasing transparency for annual bank stress tests.

Bowman stated that excessively high capital requirements could impact banks’ ability to provide credit to the real economy, and recent industry capital growth has been biased. A Morgan Stanley study shows that large banks currently hold over $175 billion in excess capital, which, once rules are clarified, could be used for lending and stock buybacks.

The banking industry welcomed the new regulations, with institutions like the Banking Policy Institute and the Financial Services Forum saying that the new rules emphasize risk sensitivity and will evaluate the draft’s specific content. Critics argue that, in a market environment under pressure, relaxing capital requirements could weaken the safety buffer of the financial system. Democratic Senator Elizabeth Warren said that the rules fail to address regulatory framework flaws and put the economy at risk.

According to the schedule, the draft will undergo a 90-day public comment period, with final implementation possibly by the end of the year.