US large banks' capital requirements to be halved, Wall Street big banks "rise first as a toast"

According to informed sources obtained by the Zhitong Finance and Economics APP, after regulatory agencies agreed to comprehensively modify the proposed package of rules, the capital increase requirement facing large U.S. banks has been reduced to 9%, a significant decrease compared to the original plan. The initial plan by the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency required eight U.S. global systemically important banks such as Bank of America (BAC.US) and JPMorgan Chase (JPM.US) to increase their capital by 19% to cushion against unexpected losses and financial shocks.

The substantial reduction in capital requirements is more likely to appease banks, as they engaged in one of the most intense lobbying activities after the proposal was introduced last year. The revised draft may also help Federal Reserve Chairman Powell achieve his goal of obtaining broad support from the Federal Reserve Board. Powell has made it clear to banks that he also hopes to avoid a lengthy legal battle.

A representative from the Federal Reserve declined to comment.

Vice Chairman Quarles, responsible for supervision at the Federal Reserve, plans to outline these changes in a speech on Tuesday. It was reported by the media last week that these three regulatory agencies are expected to release a revised proposal of up to 450 pages as early as September 19.

This capital reform was first announced in July 2023 and is related to Basel III. The Basel Accords were initiated over a decade ago as an international agreement in response to the 2008 global financial crisis.

The Federal Reserve later proposed a significantly weakened version of the plan to other regulatory agencies, which surprised some officials. The weaker version suggests that the overall capital increase for the U.S. banking industry should be as low as 5%, lower than the initial proposal of around 16%.

Powell stated that the plan announced on Tuesday may have a 60-day comment period, and the final adoption may have to wait until "later next year."

Jeremy Kress, former Federal Reserve banking policy lawyer and currently a business law professor at the University of Michigan, stated that banks are almost certain to request an extension of the 60-day period. But this is just one of the risks.

Kress said, "Even if these institutions finalize a rule before Inauguration Day, Trump's victory could jeopardize the implementation of the rule. A Republican-controlled Congress can overturn the rule through a Congressional Review Act resolution, or banks can delay compliance dates and ultimately abolish the rule."

Industry insiders have raised a wide range of concerns, from how to deal with trading risks to how these proposals interact with annual stress tests. Individual banks may not necessarily be satisfied with smaller overall capital increases, but these banks may not be willing to initiate a legal challenge on their own.

Mayra Rodriguez Valladares, a financial risk and banking consultant who previously worked at the New York Fed, stated, "A bank is unlikely to fight alone, which may not help the bank."

After the U.S. stock market closed on Monday, large U.S. banks generally rose, with JPMorgan Chase up over 2%, Bank of America, Citigroup (C.US), Wells Fargo (WFC.US) up nearly 2%, and Morgan Stanley (MS.US) up over 1%