Big US Banks to Call on Fed to Rewrite Contentious Bank Capital Rule
“While it is rare for the Fed to rewrite rules, it is not unprecedented.”
Why this is important: Let’s not get too deep in the weeds here, but understand that many banking rules in the U.S. are based on international standards set and recommended by the Basel Committee on Banking Supervision, based in Basel, Switzerland. The U.S. used to go its own way, but the combination of being the defacto world currency and the steep increase of international transactions forced the Group of Ten (G10) countries to get together to set similar policies for many financial indicators, in order for everyone to be operating on similar rules. Recently, at the urging of the three primary U.S. regulators, Basel proposed a rule raising bank capital reserve standards to 16 percent. They put this out for comment. This change has been proposed already by the three U.S. regulators. The banks, both U.S. and European, point out that higher capital reserves mean higher costs for lending and higher fees for many transactions. Also, since European banks tend to be very large and many have operated literally for centuries, they question the necessity of such an increase. Of course, increase in finance cost drives up general cost, helping to fuel inflation. It also discourages some investments. Basel would argue a systemic failure of banks would do much more damage. This ball is still in play. We will follow this. --- Hugh B. Wellons