Fed bank capital rule changes not likely before U.S. elections: analyst

By Steve Gelsi

Controversial bank capital requirements under the Basel III regime to remain in limbo for now

A commitment by Federal Reserve Chairman Jerome Powell to revise capital requirements for the U.S.'s largest banks will likely delay any changes until after the fall election season, analysts at TD Cowen said.

Meanwhile, bank stocks gained Monday after Bloomberg News reported that the U.S. Federal Reserve is circulating a lighter version of its proposed capital requirements that have drawn opposition from the industry and on Capitol Hill.

TD Cowen analyst Jaret Seiberg said he expects a re-proposal of the controversial capital rules, which won't likely be finalized until after U.S. voters go to the polls this November.

"Our view is that Fed Chair Jerome Powell has effectively made this commitment to Congress, [in March]", Seiberg said. "It doesn't mean there is zero probability for the rule to be finalized, but a re-proposal seems likely to us."

The timing introduces election risk into the equation for the capital requirements.

If President Joe Biden stays in office, the requirements will be rolled back from last year's proposal, If Trump wins, they may be tossed out entirely.

TD Cowen estimates the largest U.S. banks known as Global Systemically Important Banks, or G-SIBs, such as JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC), will see a 3 % to 5% increase in capital requirements, rather than the roughly 20% boost in last year's proposal. Regional banks may fare even better.

"We believe banks would prefer to accept a reasonable final rule than to extend this battle for what could be another five years," Seiberg said.

The new capital requirements have sparked debate among the federal governments banking regulators about the path forward, with a re-proposal now gaining favor.

-Steve Gelsi

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06-25-24 0907ET

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