US Fed's relaxed bank capital plan faces pushback from regulator, sources say

By Pete Schroeder and Michelle Price

(Reuters) -The U.S. Federal Reserve's watered-down version of a landmark bank capital proposal is facing resistance from the Federal Deposit Insurance Corporation (FDIC), a top banking regulator, according to three people with knowledge of the matter.

The Fed and FDIC are jointly writing the "Basel Endgame" rule along with the Office of the Comptroller of the Currency, but continued divisions among some key officials threaten to further delay progress on the rule, the people said on condition of anonymity.

At least three of five FDIC board directors whose support is needed to formally propose the new draft currently oppose doing so, the sources said.

Bloomberg News first reported the FDIC pushback on Friday. Spokespeople for the Fed and FDIC declined to comment.

Fed Vice Chair Michael Barr, the central bank's regulatory chief, last week outlined a plan to significantly ease a July 2023 proposal raising bank capital following intense opposition from Wall Street banks who said it would hurt lending and the economy. The new draft would increase big bank capital by 9% compared with around 20% in the previous draft.

Fed officials had for months been at loggerheads with their FDIC and OCC counterparts who had wanted to finalize the rule before the Nov. 5 U.S. presidential election, Reuters reported in June.

Barr said last week he expected the Fed's Board of Governors would vote for his revised plan. FDIC Chairman Martin Gruenberg and acting Comptroller Michael Hsu said Barr's plan reflected their joint work, and both were committed to ensuring the rule is completed.

Speaking at a press conference after the latest Federal Open Market Committee meeting on Wednesday, Fed Chair Jerome Powell said the central bank had planned to "move as a group" to re-propose the draft, although he said there was no date for when that would happen.

LEGAL UNCERTAINTY

Divisions on the FDIC board, however, currently stand in the way of a joint re-proposal, the sources said.

Jonathan McKernan, a Republican member of the FDIC's board of directors, told Reuters last week he would not vote for the re-proposal because he does not believe it fixes all the issues. Travis Hill, the other Republican FDIC board member, continues to have concerns about both the process and substance of the Basel re-proposal, said a person familiar with the matter.

Rohit Chopra, a Democrat on the FDIC board who is also the director of the Consumer Financial Protection Bureau, where he has taken a tough hand with banks, is also unhappy with the overhaul, according to two other people briefed on the matter.

Spokespeople for Chopra declined to comment.

In a statement, Hsu said was " committed to working with my peers on the next steps to drive the Basel 3 endgame to closure."



Analysts and industry sources have said that further delays to Basel could put the rule at risk of being further watered down or shelved altogether if Republican candidate Donald Trump, who has pledged to ease burdensome regulations, wins back the White House, Reuters previously reported.

While it would not be unprecedented for the Fed to move independently, or with the OCC, some industry executives and analysts say that would create legal uncertainty around the process and make the final rule vulnerable to litigation.

(Pete Schroeder and Michelle Price in Washington and Niket Nishant in Bengaluru; additional reporting by Douglas Gillison; Editing by Paul Simao)

Source: Investing.com