Report: The Federal Reserve is considering revising the new banking regulatory proposal, significantly lowering the capital requirements for banks

US financial regulatory agencies are considering adjusting a previous proposal to significantly reduce the original 16% increase in bank capital.

Overnight on Tuesday, US bank stocks rose across the board. JP Morgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley closed up by 1.31%, 1.34%, 2.25%, 1.57%, 2.65%, and 0.98% respectively.

On June 24th, Eastern Time, the Federal Reserve reportedly presented a three-page document to other US regulatory agencies, considering adjustments to the previous proposal to ease capital requirements for large trading banks, thereby reducing the burden on banks. Sources revealed that these revisions may revoke some key proposal contents, especially those that could have significant impacts on large banks, particularly those with large-scale trading operations. For example, preliminary calculations show that these proposed modifications could reduce the capital increase to 5%, far below the 16% in the original proposal. However, specific details of the discussions have not been made public at this time.

Previously, the major US financial regulatory agencies proposed a new reform, requiring banks with assets exceeding $100 billion to increase their capital by around 16%, especially for the eight largest banks in the US, where capital requirements could increase by about 19%. This means that these banks need to retain more funds for contingencies and cannot be used for other activities such as lending or investments. The new capital requirements not only apply to the largest banks, but the threshold for stringent capital requirements has been lowered from assets of at least $250 billion to $100 billion, meaning more regional banks are also included.

There have been criticisms within the industry, suggesting that these new regulations could add burdens to the banking sector during economic instability, especially by potentially increasing customer costs, suppressing lending activities, and even prompting some banks to exit the market. These proposals are designed to strengthen banks' capital structures and their ability to withstand potential future financial crises, but they have also raised concerns about the short-term economic impact and increased industry burdens. While banks have been preparing for these new regulations, market reactions indicate concerns, with bank stock indices showing a slight decline at the time.

Two Republican-appointed Federal Reserve governors have stated:

"The initial proposal could increase the cost of loans, impact the economy, and weaken the competitiveness of US banks against international rivals."

Powell had hinted earlier this year that the proposal would face "broad and substantive modifications." As the main designer of the original plan, Federal Reserve Vice Chairman for Supervision Michael Barr has also expressed the same view. It is reported that Wall Street banks have engaged in a fierce lobbying campaign since the proposal was announced in July last year. If the modifications are approved, this policy concession would be a significant victory for the banks on Wall Street However, within the U.S. government, discussions on how to adjust bank capital proposals are still ongoing, with not all departments fully unified in their opinions, and the decision-making process still uncertain.

According to media reports, U.S. government officials have not yet reached a consensus on the revision of bank capital reform proposals, and it is still unclear whether they will be able to finalize the revised plan before the November presidential election. Sources familiar with the matter revealed that Federal Reserve Vice Chairman Michael Barr has held discussions with senior officials from the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) to explore the possibility of lowering bank capital requirements.

Key officials at the OCC and FDIC are open to withdrawing the market risk component from the proposal, but some sources have indicated privately that they would oppose if the increase in capital is too low. Both the FDIC and OCC have not commented on the matter.

A spokesperson for the Federal Reserve stated that the Federal Reserve has not made any decisions regarding the timing, process, or substance of the proposals. The Federal Reserve is not focusing on a specific scope but rather on the substance of potential revisions.

Furthermore, regulatory agencies are considering changing the assessment of risks related to trading, wealth management, and investment banking activities—specifically market risk. The original proposal could have a significant impact on banks with substantial trading operations. Regulatory agencies are also considering allowing banks to use internal models to calculate trading-related risks. In addition to changes in the calculation of market risk, the Federal Reserve's documents also include recommended changes to the handling of operational risk. These changes will affect a wide range of banks