Democratic senators call for tougher capital requirements for U.S. banks
Two senior Democratic lawmakers have warned the Federal Reserve and other US regulators that it would be a “big mistake” to extend the looser capital requirements that were introduced for American banks at the start of the pandemic.
The intervention of Elizabeth Warren, the U.S. Senator from Massachusetts and former Democratic presidential candidate, and Sherrod Brown, the Ohio Senator who chairs the Senate Banking Committee, intensified a political battle over the rules over lenient, which must expire at the end. of the month.
In a letter viewed by the Financial Times, Warren and Brown said that continued capital relief for the financial sector would “significantly” weaken the stricter regulatory framework that was put in place in the decade since the last one. global financial crisis.
The letter from two of the most influential Liberal lawmakers in Congress charged with overseeing Wall Street comes as fedThe Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency must decide whether or not to extend a temporary rule change to the additional leverage ratio, which was introduced in April of last year.
The SLR requires large banks to have capital equal to at least 3 percent of their assets, or 5 percent for larger systemically important institutions.
Regulators relaxed the rules at the start of the pandemic due to fears that balance sheet constraints hamper the ability of banks to intervene to stabilize volatile financial markets and lend to distressed businesses and consumers. The Fed authorized large banks to temporarily exclude holdings of US Treasuries and cash in reserve at the central bank from their assets when calculating the SLR.
The impending deadline has amplified a political split on the issue, with Republicans, banks and industry executives pushing for an extension of the measures while Democrats demand their expiration.
“You and your predecessors of your independent regulatory agencies have succumbed to political pressure to weaken these key reforms, creating new risks for the economy and the financial system,” Warren and Brown wrote to regulators on Friday. “Extending this exemption from capital requirements at the level of the bank or the holding company would be a serious mistake.”
The banks have warned that failure to extend the relief could make it harder for them to absorb the deluge of liquidity the Fed is pumping into the financial system as well as making it easier to trade in U.S. government debt. They also said it could limit their ability to extend credit to cash-strapped businesses and consumers.
Jenn Piepszak, chief financial officer of JPMorgan Chase, said in January that if SLR relief was halted this month, the bank could also “avoid” taking new deposits, among other measures.
Some Republican lawmakers, who sided with the banks, urged Fed Chairman Jay Powell to clarify the rule during congressional hearings last week. South Dakota Sen. Mike Rounds urged Powell to keep an “open mind” when considering what he sees as “excessive and difficult capital requirements.”
Congresswoman Ann Wagner of Missouri also called for the exemption to be extended, noting concerns that the “arbitrary” removal of the exclusion could put “additional pressure” on the US government debt market. .
Warren and Brown accused the banks of using the pandemic as an “excuse” to weaken post-crisis regulatory reforms and instead called on them to increase capital levels by cutting dividends and buyouts.
“It is inexcusable to provide Wall Street with deregulated capital exemptions while allowing them to pay out tens of billions of dollars in capital each quarter,” they wrote.
Powell said last week that the U.S. central bank has yet to make a decision on the SLR.
Regarding Warren and Brown’s letter, a Fed spokesperson said, “We have received the letter and plan to respond to it.”
The FDIC and OCC did not immediately respond to a request for comment.