By Katanga Johnson and Craig Torres
Wall Street banks are on the cusp of a sweeping regulatory victory after Federal Reserve Chair Jerome Powell signaled officials would scale back plans to make them hold more capital.
The world’s most powerful central banker flatly told lawmakers Wednesday that the government’s plan was in for “broad and material changes,” and that a complete do-over was very possible. Powell’s comments appeared to catch even seasoned industry lobbyists off-guard and immediately threw into doubt a signature Biden-era regulatory effort.
Beyond the fate of the capital rule, Powell’s comments underscore the heft that the banking industry now holds in Washington more than a decade after it was blamed for the Global Financial Crisis. Industry groups have spent months waging a fierce lobbying campaign that’s featured appearances by chief executive officers, television spots during sports games and a barrage of comments submitted against the plan.
“It is unlike anything I have seen,” Powell told the House Financial Services Committee about the comment letters on the plan. Latham & Watkins, a law firm whose clients include banks, has said 97% of more than 300 comment letters raised substantial concerns with the entire plan or critical parts of it.
The proposal from the Fed, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency is tied to the Basel III international overhaul that started more than a decade ago. Supporters have also billed it as a fix for some of the issues exposed by the failures of Silicon Valley Bank and Signature Bank.
Final Plan
Michael Barr, the Fed’s vice chair for supervision, has been the face of the effort. Barr has said he’s open to changes, but has also defended the agencies’ initial approach as a way to ensure banks can withstand future crises. On Wednesday, Powell inserted himself into the fray with comments that immediately eclipsed his planned remarks on monetary policy and the state of the US economy.
Powell, Barr, and other senior Fed officials will need to vote on a final plan before the rules can take hold. The initial proposal cleared with an unusually close 4-2 vote, while Powell and Biden-appointee and Fed vice chair Philip Jefferson expressed reservations. The Fed chair decides when to put a measure before the central bank’s voting members, while the FDIC and OCC also need to approve a final version.