RPT-BREAKINGVIEWS-Big banks audaciously try to thread capital needle

By Stephen Gandel

NEW YORK, July 23 (Reuters Breakingviews) - Mega-banks are ready to shrink the capital dam protecting U.S. taxpayers from another financial storm. At a daylong event hosted by Michelle Bowman, the Federal Reserve vice chair of supervision, the consensus was that ultra-protective measures are restraining lenders and the economy. It’s an all-too-common deregulatory refrain that is hard to square with the industry’s stated desire to stick with international safety standards.

Urgency to rewrite banking rules is at its highest since 2008, albeit in the opposite direction. Bowman convened the gathering, which filled the central bank’s temporary Washington headquarters on Tuesday, just six weeks after the U.S. Senate confirmed her appointment. Fed Chairman Jay Powell, OpenAI boss Sam Altman and Morgan Stanley MS.N CFO Sharon Yeshaya were among those who carved out time to attend.

It was largely an echo chamber. Mike Mayo, an analyst with Wells Fargo who has pilloried bankers in the past for their carelessness, joined executives on the dais to argue that measures today are hurting the economy. Among the evidence he cited was stagnation in corporate lending by the biggest banks.

At issue is exactly how much capital systemically important institutions must hold and the complex methods regulators use to calibrate such sums. The six largest banks, including JPMorgan JPM.N and Citigroup C.N, now have a collective $1.3 trillion cushion, a 19% increase over the past decade, outpacing 8% growth in risk-weighted assets.

Only smaller lenders, who theoretically stand to benefit from stiffer requirements on their bigger brethren, expressed concern about rolling back rules. Bill Demchak, CEO of regional PNC Financial Services PNC.N, warned from the audience: “Don’t get too complacent.” He contends that capital relief would benefit hedge funds and speculative investors, not Main Street.

Basel 3 is a complicating factor. Large U.S. banks successfully thwarted Biden administration attempts to implement the globally agreed framework in a way that would have been tougher on them than their overseas peers. President Donald Trump has hinted at withdrawing from the accord altogether, a move that would track with his broad deregulation agenda and abandonment of international pacts. Even bank CFOs at the Fed function said they don’t want that, but pushing back too hard threatens to open the floodgates.

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CONTEXT NEWS

The U.S. Federal Reserve hosted a daylong event in Washington on July 22 focused on rules that determine the amount of capital the nation’s largest banks are required to hold as a cushion against an economic or financial crisis.