Opportunity for looser rules for banks with Trump administration
Big U.S. banks plan to push to overhaul more capital rules on the heels of their success last year weakening draft capital hikes. Read the full article.
Emboldened by a friendlier incoming Trump administration, one of the banking industry’s goals is to weaken the “Basel Endgame” capital rule. This would reduce a capital surcharge on global banks, re-work a key leverage constraint, and overhaul the Fed’s annual tests that assess whether a bank could withstand an economic shock.1
These rules aim to prevent another financial crisis and are focused on the biggest banks like JPMorgan Chase, Bank of America and Goldman Sachs. These banks say the requirements to stash away almost $1 trillion combined, to absorb potential losses in a crisis, are “excessive and poorly calibrated.” There is also sentiment among them that the cash stash could better serve the economy through lending.1
After years of criticism for the financial crisis, big banks are done apologizing, and now pointing out how they successfully weathered Covid-19 and helped stabilize regional banks during turmoil in 2023.1
There is also an expectation that Trump will appoint new industry-friendly officials. Big banks are buoyed after intense lobbying in 2024 succeeded in halving the amount of capital banks would have to hold under Basel, also prompting the Fed to review its stress test process. All of which has poised banks for an opportunity to reshape capital rules.1
There is also some history to bolster confidence. In Trump’s first term, banks saw loosening trading rules and simplified stress tests, though they did not get a comprehensive review of big bank capital rules implemented following the 2008 financial crisis.1
"All we want is a coherent, rational, holistically assessed regulatory framework that allows a bank to do their job supporting the economy that isn't reflexively anti-bank," said JPMorgan's CFO Jeremy Barnum.1
Pragmatic oversight
The banking industry has been laying the groundwork for months in advance of Trump’s inauguration, working with Republican regulators who are set to replace Biden’s agency leads. Banks are currently lobbying to advance a weaker draft of Basel, which overhauls how they gauge risk. A revised draft would hike capital around 9% compared to 19% originally, but lenders hope to push that figure closer to zero, according to sources.1
Banks agree it would be better to lock in a weaker rule under Trump than have regulators shelve the project, risking a future Democratic administration reprising a stricter version.1
1 - Wall Street banks sense opportunity for looser capital rules as Trump ushers in new era, Reuters via Yahoo Finance, 01/17/2025
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