At Extreme Investor Network, we bring you the latest updates and insights in the world of finance. Today, we delve into the recent changes proposed by a top Federal Reserve official regarding U.S. banking regulations, specifically the Basel Endgame.
Originally introduced in July 2023, the Basel Endgame aimed to increase capital requirements for the world’s largest banks by approximately 19%. However, after receiving feedback from various stakeholders, including banks, business groups, and lawmakers, the Federal Reserve, along with other regulatory bodies, decided to scale back the proposed increase to a more modest 9%.
This adjustment comes after concerns were raised about the potential impact of the original proposal on lending and trading activities. By requiring banks to hold more capital as a buffer against losses, the plan could have made loans more expensive and harder to obtain, potentially shifting activity to nonbank providers.
Industry executives, including JPMorgan Chase CEO Jamie Dimon, were vocal in their opposition to the original proposal, and their efforts seem to have paid off with the revised regulations. Not only do big banks benefit from the changes, but regional banks with assets between $100 billion and $250 billion are also excluded from certain aspects of the proposal.
One key aspect of the revised proposal is its focus on bringing measures of risk more in line with international standards, particularly in areas such as mortgages and retail loans. Additionally, the proposal addresses issues related to tax credit equity funding structures, operational failures, and investment management operations.
Moving forward, the Federal Reserve aims to resubmit the proposed Basel Endgame regulations and a separate set of capital surcharge rules for the largest global institutions. This process will involve a public review that could extend beyond the upcoming November election.
While the revised regulations aim to strike a balance between the benefits and costs of capital requirements, it remains to be seen how the industry and stakeholders will respond. Some banks and trade groups have threatened litigation to prevent the implementation of the original draft, underscoring the ongoing challenges of strengthening capital requirements in the aftermath of the Global Financial Crisis.
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