US Banks Push Back As Regulators Prepare International Capital Hikes

• U.S. banks are pushing to soften a major regulatory proposal to hike bank capital requirements, worried it could prove too onerous, especially for lenders still reeling from the March banking crisis, according to six people briefed on the matter.
• Bankers are particularly concerned by an aspect of the draft proposal that would apply higher capital charges on non-interest revenue, such as the fees lenders charge on credit cards or investment banking services.
• That capital charge is part of the package agreed upon by the Basel Committee in 2017, but the industry says it overstates the risk for banks that have a high proportion of non-interest income and had hoped U.S. regulators would mitigate its impact.
• Non-interest services income has been a key focus of many lenders' growth strategies in recent years, one industry official noted. American Express, Morgan Stanley and the U.S. units of UBS, Deutsche Bank and Barclays are among banks with a high proportion of non-interest income, according to a 2022 blog by Washington group the Bank Policy Institute.
• While the Basel rules were agreed upon years ago, the U.S. regulations to comply with them are being drafted in the wake of this year's banking crisis in which deposit runs caused Silicon Valley Bank and two other lenders to fail. The proposal is the first major rule led by Fed Vice Chair for Supervision Michael Barr, who has launched a sweeping review of capital rules and is expected to be tough on Wall Street.
• The proposal is also expected to apply stiffer capital rules to smaller lenders with over $100 billion in assets, which would include some that experienced liquidity problems this year, three sources said. Given investor jitters over the health of the industry and the broader economy, bankers say, hiking capital now could backfire, putting pressure on banks and hurting lending.

(Source: Reuters)