BANKS SAY time is right to ease regulations.
The country’s biggest banks are asking federal officials for long-sought regulatory relief as part of the government’s efforts to contain the economic fallout from the coronavirus, requests that experts lambasted as opportunistic and unnecessary.
The Bank Policy Institute — a lobbying group for banks including Bank of America, JPMorgan Chase, Wells Fargo and Citigroup — is recommending, among other things, that the Federal Reserve lower capital requirements and ease the periodic “stress tests” banks take to prove they can survive another economic crisis.
The Federal Reserve could “make changes to its bank regulations or enact promptly already planned regulatory changes that would not reduce safety, soundness or financial stability,” the group said in a note titled “Actions the Fed Could Take in Response to Covid-19” signed by Greg Baer, its chief executive; Francisco Covas, head of research; and Bill Nelson, the chief economist.
The recommendations are “transparently opportunistic,” said Jeremy Kress, an assistant law professor at the University of Michigan School of Business. For years, the banking industry resisted calls for higher capital requirements that could have been used as a buffer, or a rainy-day fund, during economic turmoil, he said. Those buffers could have been turned off now to give the industry more flexibility to make loans during the current economic uncertainty, Kress said.
But without those buffers reducing existing capital requirements, which are currently set at minimum levels, the timing could be risky, he said.
“The whole idea of capital requirements and stresstesting banks is to make sure they have enough cushion to absorb losses” during an economic crisis, Kress said.
Sen. Sherrod Brown, DOhio, ranking member of the Banking Committee, said in a statement: “My priority right now is ensuring that our federal, state and local health agencies have the resources they need to keep Americans safe. It’s not the time to reduce financial system protections to bolster the bottom lines for Wall Street.”
Several of the group’s largest members, including Wells Fargo, Bank of America and Citigroup, declined to comment on the Bank Policy Institute’s efforts.
JPMorgan Chase, the country’s largest bank, is “ready to help” with the government’s coronavirus response, spokesman Andrew Gray said in a statement. “Our primary focus as a bank is to consistently provide credit and capital to support clients, customers and communities through this uncertain period,” he said.
The bank stands by efforts by regulators to “help lenders freely, fairly and better serve their customers,”
Gray said, but “this issue is up to the regulators and should not be used to push for unrelated regulatory changes.”
The Fed made an emergency interest rate cut Tuesday, slashing the benchmark U.S. interest rate by half a percentage point, but has made no mention of the industry’s desired regulatory relief. “We saw a risk to the outlook of the economy and we chose to act,” Fed Chairman Jerome Powell said at a news conference shortly after the rate-cut announcement.
Treasury Secretary Steven Mnuchin told reporters after a Capitol Hill hearing Tuesday that he is talking to bank regulators about potential regulatory relief measures.
At the bank’s annual meeting last week, JPMorgan Chase CEO Jamie Dimon said he dreamed about the coronavirus. “I had this nightmare that somehow in Davos [the Swiss resort that hosts the World Economic Forum], all of us who went there got it, and then we all left and spread it,” he said, according to CNN. “The only good news from that is that it might have just killed the elite.”
In the note from the Bank Policy Institute, the group says it supports “easing monetary policy” but goes on to recommend some longsought regulatory changes.
“All of these reforms are designed to allow banks to deploy their abundant capital and liquidity to continue lending in support of the economy,” Baer, the group’s president, said in a statement. “We have been proposing many of these reforms for years with a moment like this in mind; it would be strange to abandon them when they were potentially most needed.”
The banking industry has scored significant wins rolling back regulations during the Trump administration.
Federal regulators earlier this year proposed weakening key post-financial-crisis restrictions on risky trading known as the Volcker rule. It has also proposed allowing big banks such as JPMorgan Chase and Bank of America to submit their full “living wills” — plans for their closure during another economic crisis — less often.
But some bankers have grown concerned that postfinancial crisis rules could still limit their ability to lend to troubled companies during an economic downturn.
Larry White, a professor at New York University School of Business, argued that deregulation has already gone too far, and that the coronavirus could pose unique challenges to the financial system that are still unclear. As the virus spreads, some people may not be able to work, shop and travel, he said, and “that is a problem for businesses because at the end of the day they won’t be able to sell stuff.”
“But I am not sure that is a good argument for, ‘Oh, we need to do something about liquidity,’” White said. “That is overreach by the [Bank Policy Institute].”
The banking industry has scored significant wins rolling back regulations during the Trump administration. Federal regulators earlier this year proposed weakening key post-financial-crisis restrictions on risky trading known as the Volcker rule.