In This Article:
By Pete Schroeder
WASHINGTON (Reuters) -U.S. regulators launched an ambitious effort that would order large banks to set aside billions more in capital to guard against risk Thursday, although a lukewarm response from the head of the Federal Reserve raised questions about how the plan might change before its completion.
The proposal to raise capital by 16% overall, put forward by a trio of U.S. bank regulators, would overhaul how banks measure the riskiness of their behavior, and in turn how much capital they must hold as a cushion.
The Fed, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency all agreed to put the over 1000-page proposal out for public feedback, which the banking industry is already hotly criticizing. The industry is already warning that such a big hike could force them to trim services, raise fees, or both.
In a statement, Fed Chair Jerome Powell said he supported putting the proposals out for comment, but quickly detailed numerous questions with the plan, saying regulators have a "difficult balance" to strike.
"Congress and the American people rightly expect us to achieve an effective and efficient regulatory regime that keeps our financial system strong and protects our economy, while imposing no more burden than is necessary," he said.
Powell has said in the past the regulatory agenda at the Fed is primarily set by Vice Chair for Supervision Michael Barr, who helmed the proposal. But his measured support looms large at an agency that prioritizes consensus whenever possible. Several officials noted an interest in receiving feedback on the proposal, suggesting changes will be forthcoming.
"This is the high-water mark for how onerous we expect these capital requirements will be for the regional and mega banks. Changes in response to comments should moderate these proposals, though the impact will remain material for the big banks," said TD Cowen analyst Jaret Seiberg in a research note.
The proposal marks the first in an extensive effort to tighten bank oversight, particularly in the wake of spring turmoil that saw three large financial firms fail.
Barr said he would be mindful of incoming comments on the proposal, but underlined Thursday the need for robust capital.
"Neither regulators nor bank managers can anticipate all risks, or how risks may be amplified and propagated," he said in prepared remarks.
The package was opposed by Republican officials at the Fed and FDIC, who argued it was misguided and onerous. Those concerns have been echoed by banks and Republican members of Congress ahead of the plan's release, signaling a bumpy and long road ahead to finalizing the massive overhaul.