US Fed’s top bank cop to discuss sweeping capital rules

Federal Reserve Board Vice Chair for Supervision Michael Barr testifies at a House Financial Services Committee hearing on the response to the on recent bank failures of Silicon Valley Bank and Signature Bank, on Capitol Hill in Washington, U.S., March 29, 2023. REUTERS/Kevin Lamarque/

WASHINGTON  – The U.S. Federal Reserve’s top regulatory official will discuss a sweeping proposal to overhaul bank capital rules before the country’s largest bank lobby on Monday, as he faces intense industry pushback against the rules which bankers say will hurt lending.

Fed Vice Chair for Supervision Michael Barr’s speech at an American Bankers Association conference will mark his first on bank regulation since the central bank in July unveiled the complex “Basel Endgame” proposal overhauling how banks gauge the amount of capital they must hold against potential losses.

The proposal implements international capital standards agreed by the Basel Committee on Banking Supervision in the aftermath of the 2007-2009 financial crisis. Since July, banks have been pushing back hard, enlisting allies in Congress and ad campaigns. They say it will hurt mortgage borrowers, lending to green projects and the broader economy.

READ: US regulators kick off contentious effort to hike bank capital

Barr will be answering questions after his speech. An ABA spokesperson said the group appreciates Barr participating, but he will “hear our concerns about the very real economic harm these proposals will have on the economy and the customers and communities banks serve.”

Barr has maintained that strong capital ensures lenders can weather downturns and any surprise risks. He has cited the failure of Silicon Valley Bank and two other U.S. lenders this year as evidence the system needs to be strengthened.

Bankers will be listening for any hints Barr may be willing to change the proposal, particularly proposed new risk weights for mortgages and non-interest fee income.

READ: JPMorgan, Citigroup say higher capital requirements may hurt lending

Fed Chair Jerome Powell voted to propose the rules, but noted he had questions and was eager to solicit feedback. While Powell has said he would defer to Barr as the Fed’s Wall Street regulator, industry executives hope Powell’s concerns may lead to a less stringent proposal.

“This whole episode is the first test of the operational latitude that the Vice Chairman for Supervision has from a policymaking perspective,” said Isaac Boltansky, director of policy research for brokerage BTIG.