Bankers have reason to hope that Trump will win
H. isThank you noticed that American bankers are fighting over the proposed new capital rules? What did he give? Perhaps it is the ads that warn of bad effects for the economy, which come out at prime moments in Sunday night football matches. Perhaps the risks were not at all from executives. Suing your regulator is “not a preferred option,” JPMorgan Chase’s Jeremy Barnum told investors on a recent earnings call, but “it can’t be taken off the table.” ” Or maybe it’s the number of letters that have recently arrived in the mailboxes of the Federal Reserve and other banking institutions.
The American process of creating new bank regulations has many stages. Regulators publish their agenda in the Federal Register, a weekly magazine that details plans for regulations, proposed regulations, completed regulations, and so on. forward. They talk to members of the industry and do impact analyses. The back and forth between business and supervisor, at this point, is done over coffee, often in private rooms in federal buildings. Then a “Notice of Proposed Rulemaking” is published, the “comment period” begins, interested parties send letters to regulators – and the battle comes out into the open.
The process is usually very technical. It has been nothing but proposals on how to implement Basel III, known as the “Basel III endgame”, which were first published in July. It seems that the heads of big banks took offense at them personally. Their thought process probably goes like this: are we really so inept at managing risk that system-wide capital levels need to be increased by 16%? After collecting objections, the consideration period was extended from November 30 to January 16.
Now that all complaints have been filed, and letters have been published, the depth of the opposition is clear. Latham & Watkins, a law firm, found that although 347 submissions were in full or partial agreement with the regulations, only nine supported them as proposed. Find a wide range of fault groups. It’s hard to imagine another reason why BlackRock and Goldman Sachs would unite with the National Association for the Advancement of Colored People, environmentalists, estate agents and most sitting senators.
The rules are long and complicated, and so are the complaints. But they boil down to three themes. First, there is no need for a large increase in capital. Second, the regulations will restrict banks’ ability to intermediate capital markets. Third, they will break loans to important parts of the economy, such as housing and environmental projects (especially those favored by President Joe Biden’s Inflation Reduction Act).
Last year it looked like bank chiefs had retired. JPMorgan’s Marianne Lake described the proposals as “a little bit like being a hostage”. The requirement was so terrible at first “even if it changes a little, you are grateful for that, but it may still be high.” ” They seem more certain now that the rules will be changed. “I don’t think anyone [thinks] that this is going to move forward as proposed,” said Denis Coleman of Goldman Sachs on January 16.
Fed governors usually try to reach a consensus on regulatory issues. This time, however, they are separated, with Michelle Bowman and Christopher Waller, two appointed by Donald Trump, against the rules when they were first proposed. On Jan. 16, Mr. Waller told the Brookings Institution, a think tank, that “it might be even better to just withdraw it” and start over. On Jan. 17, Ms. Bowman told the Chamber of Commerce, a lobbying group , that agencies should make “substantial changes” to the rules.Even Jerome Powell, the chairman of the Fed, has expressed doubts.
There are three ways things can go. Regulators could push on without stopping, and end the rules. This almost led to the lawsuit Mr. Barnum mentioned. Any lawsuit would be based on procedural issues – bank lobbyists argue that agencies have violated legislation that requires data and analysis behind recommendations to be publicly available. (Banks claim no; the agencies have yet to respond.)
The other two options are equally inconvenient: organizations could make major changes to the rules or they could withdraw them and start over. One or two approaches required repeating the feedback-and-feedback cycle.
A difficult situation is made more difficult as the groups begin to run out of time. The Congressional Review Act allows an incoming Congress to throw out any rule that has been completed less than 60 legislative days before it takes effect. With the upcoming presidential election and the time off for summer recess, that date is closer than it seems. It falls in July. If rules are not ended soon and Mr Trump, who relaxed bank capital requirements when he was last in office, wins the election in November, standards are likely to be completely eliminate more.
So bankers have every incentive to delay the time at which the rules can be finalized. Will that affect their politics? Bank chiefs are not usually big political donors. According to data compiled by Open Secrets, a nonprofit outfit, neither Jamie Dimon of JPMorgan nor David Solomon of Goldman Sachs donated money during this presidential campaign. Among younger workers, there doesn’t seem to have been a real shift. If anything, donations from people employed by JPMorgan, Citigroup and Bank of America are favoring Democrats more broadly than in 2020. Few things may be more important than capital requirements — and that’s not it. you would gather from listening to bank advertisements. ■
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