Changes to Fed’s bank capital plan are likely, says Powell

Federal Reserve chairman Jerome Powell said he expects significant changes to the US central bank’s proposed rule on capital banking requirements, after opposition from legislators and banks.

The proposal, which was introduced by the Fed vice chairman for supervision Michael Barr, would require big banks to raise their capital requirements by about 20 per cent to absorb potential losses, which exceed the Basel 3 Endgame requirements.

The rule would apply to banks such as Wells Fargo and JP Morgan, whose assets range between $100 billion and $250 billion.

“It’s more important that we get this right and that we do it fast,” Mr Powell said during the question-and-answer part of his evidence before the House financial services committee.

“We understand that this is an important rule-making [process] and it’s going to have potential implications for the economy and the people we serve.”

As Mr Powell and members of Congress were discussing the proposed rule changes, the troubled New York Community Bank secured a $1 billion capital raise from companies in a move that would also bring former Treasury secretary Steve Mnuchin to its board.

The bank has recently come under tremendous pressure after a filing showed “material weaknesses” in the company’s internal loan review controls.

Big banks and Republicans have vehemently opposed the Fed’s new rules, which also received criticism from some Democrats who say they could hurt small businesses by cutting off access to credit.

Patrick McHenry, committee chairman, called on the regulators to withdraw the proposals and “start over”.

Mr Powell said the Fed had not made a decision on a re-proposal, but would not hesitate to do so. “We do hear the concerns and I do expect that there will be broad material changes to the proposal,” Mr Powell said. “I’ll add that I am confident that this final product will be one that does have broad support … in the broader world.”

The proposal is a continuation of a rule global regulators have sought to introduce after the 2008-2009 financial crisis.

US regulators approved the proposal last summer after the collapse of three regional US banks sparked fears of a new global crisis. Those failures were largely blamed for poor management, although a Fed review also criticised the regulator’s supervisors.

Mr Powell said the Fed is monitoring banks with “significant concentrations” of commercial real estate and having conversations with them on how they plan to deal with potential losses.