Powell says “broad” overhaul coming for Basel bank capital proposal

© Reuters. FILE PHOTO: Federal Reserve Chair Jerome Powell holds a press conference following the release of the Fed’s interest rate policy decision at the Federal Reserve in Washington, U.S., January 31, 2024. REUTERS/Evelyn Hockstein/File Photo

By Pete Schroeder

WASHINGTON (Reuters) -Federal Reserve Chairman Jerome Powell said Wednesday the central bank and other regulators will be making significant changes to a contentious plan to raise large bank capital requirements.

Testifying before Congress, Powell said officials have begun reconsidering the so-called “Basel III endgame” proposal unveiled in July, and are aware of industry complaints about its cost and potential economic impact.

“We do hear the concerns and I do expect there will be broad material changes to the proposal,” he told the House Financial Services Committee. “I’ll add that I’m confident that the final product will be one that has broad support at the Fed and in the broader world.”

Powell also did not rule out reproposing the rule to solicit further feedback, a step that could significantly delay the project and potentially push it into a new presidential administration.

Reuters reported before Powell’s testimony that regulators were looking into major changes to the proposal that would significantly reduce the impact on banks.

The proposal, part of an international accord with other bank regulators, would change how banks gauge their risk and how much cash they should hold against potential losses. Banks have intensely opposed the proposal, which would direct roughly three dozen of the biggest banks to set aside billions of dollars more in capital, calling it misguided and warning it would hinder lending.

Powell declined to get into specifics on changes, noting that regulators were in the early stages of absorbing feedback and evaluating possible changes. But he also noted that other rulewriting projects that intersect with that effort, such as a plan to require banks to issue more long-term debt, may need to be reconsidered as well.

Powell’s comments suggest the opposition from banks, as well as critiques from members of Congress and other businesses, are resonating with regulators.

When asked about an external study that found 97% of the comments filed on the proposal were critical, Powell said, “It’s unlike anything I’ve seen.”