US banks to make final push on capital rule changes as Fed wraps up consultation

Large US banks have formally requested central bank tweaks to a regulatory proposal, seeking reductions in capital requirements for trading activities and credit card lines.

Large ‌U.S. ​banks on Thursday formally pitched the central bank on tweaks to a regulatory proposal aimed at reducing funds they must set aside to absorb potential losses, as the central bank enters the last leg of a marathon overhaul of U.S. capital rules. Among their top asks are reductions to capital assigned to Wall Street trading activities, scrapping a requirement to hold capital against unused credit card lines, and ‌further fixes to reduce the impact of a surcharge levied on globally interconnected banks, according to five industry executives and employees. The officials spoke anonymously to discuss ongoing regulatory matters and the contents of some comment letters that are not yet public. U.S. regulators led by the Federal Reserve in March unveiled new relaxed drafts of sweeping capital rules, which they estimated would reduce big banks' loss-absorbing capital by around 4.8%, arguing the current rules are hurting the economy. The so-called 'Basel' rules overhaul how banks measure their risk and in turn how much capital they need. Lenders ‌believe the new proposal is a dramatic improvement from the central bank's original 2023 plan put forward by Democratic officials keen to impose stricter bank rules, which had envisaged a 20% capital hike following regional bank failures. In a joint comment letter filed ‌by several large banking trade groups, the industry said that the eight largest global banks would see their capital fall by roughly $22 billion, or 2.7%, if proposed changes to Basel, a separate surcharge on large global banks, and annual bank "stress tests" are adopted. The letter was signed by the American Bankers Association, Bank Policy Institute, Financial Services Forum, Consumer Bankers Association and U.S. Chamber of Commerce.

After analyzing hundreds of pages of proposed technical changes, lenders have identified issues which they will make one last-ditch push to fix via comment letters due Thursday, the sources said. "There's a really big push to get it wrapped up in the next six months because there are other ⁠items on the ​regulatory agenda," said Matthew Bisanz, a partner at Mayer Brown who specializes in ⁠financial regulation.

A Fed spokesperson declined to comment. Critics of the easier rules argue that trimming bank capital requirements makes the firms more vulnerable to risks, and could hurt the economy should financial firms falter and restrict lending.

Last month, Phillip Basil, director of Economic Growth and Financial Stability for Better Markets, said in a press statement "strong capital ⁠standards are the foundation" of a resilient banking system, because "they ensure that banks - not taxpayers, workers, or small businesses - absorb losses when risks materialize." TRADING, CREDIT CARD CHANGES Wall Street banks argued that regulators have been too conservative and blunt in assigning capital to trading activities, especially since the Fed annually gauges individual banks' ​risks with its "stress test" health checks. Industry groups suggested changes that could dramatically shrink or even erase the additional capital the Fed has proposed for that business, executives said. The banking industry also pushed back against a requirement to effectively hold capital ⁠against 10% of unused credit lines known as "unconditionally cancelable commitments," the most common of which is unused credit card lines. Currently, such credit lines are capital-free because banks can yank them at any time, but regulators argue that in practice lenders may not do that during times of economic stress due to client relationships or other risk management practices. ⁠The industry ​groups called the change unjustified and lacking proper analysis. A handful of the biggest banks also are pushing to further soften the capital "surcharge" the Fed imposed on global systemically important banks in the U.S., or "GSIB," following the 2008 financial crisis.

The Fed proposed a one-time adjustment to account for economic growth dating back to roughly 2019, as well as automatic updates for future growth, which would in turn reduce banks' size relative to the economy and the resulting surcharge. But lenders will again argue it should account for growth since its creation ⁠in 2015, the people said. NO MAJOR CHALLENGE

Banks do not plan to push back hard the way they did in 2023. Multiple executives said banks have pared back their asks, focusing on the most significant issues. "We encourage the agencies to finalize the proposal expeditiously, ⁠so firms and the broader economy can benefit from the improved risk ⁠sensitivity in the expanded risk-based approach," said several banking trade groups in a joint letter. One industry group identified nearly 100 issues with the proposal but plans to make the case for only a few dozen, according to one of the people who is familiar with the plan. Reuters had previously reported that Fed Vice Chair for Supervision Michelle Bowman, who is leading the rulewriting effort, had conveyed ‌to banks they should be measured in ‌their feedback, and executives said the industry is keen to move on from a policy fight that has sucked up years of time ​and energy.

(Editing by Michelle Price; Aurora Ellis and Andrea Ricci )