A group of US banks is accusing the Federal Reserve of breaking the law. She wants to take action against tightening capital regulations, which could reduce companies’ profits.
US banking associations, in which major banks such as JPMorgan, Goldman Sachs, Morgan Stanley and Citigroup are represented, are protesting against a planned increase in capital requirements for the industry.
According to banking associations, the US Federal Reserve (Fed) did not comply with regulatory requirements when it planned to tighten capital regulations. In doing so, the Fed and other federal authorities would have violated federal law.
Requirements of the law not met?
According to Reuters news agency, bank representatives have stated in a public letter that the proposal to change capital regulations presented in July violates the Administrative Procedures Act (APA). There was insufficient public data and analysis to justify the proposal. The APA imposes certain requirements on authorities when planning new regulations. This also includes economic analyses.
In addition to the US Federal Reserve, the Federal Deposit Insurance Corp (FDIC) and the banking regulator Office of the Comptroller of the Currency (OCC) are also involved in the proposal. It is intended to implement international standards agreed by the Basel Committee on Banking Supervision following the financial crisis of 2007 to 2009. It regulates how banks assess their risk level and how high the reserves must be that they have to hold as a loss buffer.
Billions in additional capital buffers
The tightening would require banks to hold back more funds to protect themselves against losses. According to previous estimates by the central bank, the requirements for the industry would increase by $170 billion if the project were implemented.
JPMorgan boss Jamie Dimon had already criticized the project on Monday and said that banks could withdraw as lenders. One of the associations warned in an advertising campaign that the plan could lead to rising credit costs for consumers and businesses. The associations are now calling for new proposals on a proper basis. They had recently tried with unusual severity to water down the template.
Measure against new bank bankruptcies
According to the Federal Reserve and the FDIC, the new regulations are also intended to be a response to the collapse of smaller US banks at the beginning of the year. Most recently, the regional bank First Republic got into trouble after customers withdrew money from the institution. First Republic has since been acquired by JPMorgan.
The Silicon Valley Bank, which was primarily active in start-up financing, was previously closed by the authorities after a billion-dollar capital gap arose. Even US President Joe Biden declared after the bankruptcies in the industry that the country’s banking system was safe. However, Biden had also spoken out in favor of stricter supervision and regulation of both large banks and regional banks.