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(Bloomberg) — Wall Street lenders and their lobbyists are descending on the Federal Reserve’s first-of-its kind banking conference Tuesday with a broad ask of the new vice chair for supervision: Steer clear of stricter capital requirements.
Senior officials from JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley are expected to use the event to detail a host of rule changes they’d like to see from regulators. Hot-button issues include the landmark risk-based plan known as Basel III endgame, the stress-testing framework and the capital surcharge for big banks.
The conference is the brainchild of the Fed’s new top bank cop, Michelle Bowman, who was confirmed last month after being lauded by banks for her drive to curtail rules and tailor supervision. It will effectively kick off her promise to reverse what she sees as a flawed approach to capital rules.
Regulators have already been looking to dial back some requirements, unveiling a proposal in June to ease a key rule known as the enhanced supplementary leverage ratio. The Fed is also in the process of overhauling its stress tests, which gauge how large banks would fare during a hypothetical recession.
Bowman is expected to help craft a new proposal tied to the so-called Basel III endgame. She was a sharp critic of the plan as originally drafted, which would have increased the biggest banks’ capital requirements by 19% to buffer against losses and a financial crisis. The Fed later walked back that proposal.
Treasury Secretary Scott Bessent on Monday pointed to that Biden-era bank capital proposal, which would have used two different methodologies when calculating risk-weighted assets. He said that instead of requiring banks to use whichever methodology resulted in a higher level of those assets, one possible option would be to give each bank that is not subject to the modernized requirements the choice to opt-in.
“This would result in a meaningful reduction in capital for those banks,” Bessent said in prepared remarks.
Questions remain about whether final rule outcomes will resemble more of a capital-neutral standard, which some say would ease US requirements and put them more in line with international regulations, or go beyond that to significantly reduce the capital threshold for the largest banks.
Fed Chair Jerome Powell underscored Tuesday the need for the banking system’s capital framework to work together effectively, and for banks to be well-capitalized and to manage their risks well. He added that competition is also crucial for the industry.
“We need large banks to be free to compete with one another, with nonbank financial firms, and with banks in other jurisdictions to provide capital and support economic growth,” Powell said in prepared remarks.
Supporters of tougher requirements, including Biden-era regulators, say the benefits of stricter capital requirements would outweigh their costs, by ensuring banks’ solvency even in the worst foreseeable circumstances. Industry groups have frequently criticized the rules though, saying they raise the costs of lending and put US banks on weaker footing against international rivals.
Noting the need for a more transparent approach to reforms, Bowman — who President Donald Trump nominated — has billed the forum as a way to spark “expert discussions on whether capital requirements are operating as intended.” It includes panels with bank officials, attorneys and academics in addition to a conversation with OpenAI chief Sam Altman.
Speaking onstage with Bowman, Altman said he was surprised some financial services were early adopters of artificial intelligence tools but noted banks have been great partners. He also warned about the potential risks of AI being used for fraudulent impersonation.
Altman said he was “very nervous” about a significant fraud crisis, adding that to address the problem people have to change the way they interact.
‘Tailoring’ Regulation
Bank officials and academics pointed to other regulatory challenges throughout the day, such as balancing safety and soundness against innovation and growth.
Ian Katz, a managing director at Capital Alpha Partners in Washington, touted the event as crucial in helping the Fed think through some specific details.
“I think we end up with rules closer to capital neutral,” said Katz, adding that the voices in the room play a key role in shaping overall outcomes.
Andrew Olmem, the Washington—based managing partner at law firm Mayer Brown, said the conference shows how Bowman will make an effort to build consensus with industry, other financial regulators and the public about the future of capital standards before new rules are adopted, especially given the complexity and interconnectedness of such reform.
But some critics dismiss the event as merely window dressing as the administration pursues the deregulation agenda Trump campaigned on last year. Graham Steele, a Fed alumnus who served as a Biden-era Treasury official, described the conference as a Fed listening session with mostly bankers and other detractors of regulation that will result in weaker rules for Wall Street.
“They’ll try to couch deregulation in neutral-sounding language about ‘tailoring’ or ‘efficiency,’ but those are just buzzwords for lower capital and leverage requirements, less stringent stress testing, and weaker supervision and enforcement,” Steele said.
–With assistance from Shirin Ghaffary.
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