The Deputy chairman of the Federal Reserve for Supervision, Michael Barr, during a speech at the American Bankers Association (ABA) event on Monday, October 9, said that lenders should consider the new capital requirements as a help, not an obstacle.
According to Mr. Barr, the proposed rules will contribute to improving the security of the financial system. He said that the new requirements will raise capital for large banks.
At the same time, Michael Barr says that the proposed rules may cause higher financing costs, but this is only part of the consequences. According to him, capital provides banks with the opportunity to cover more losses and at the same time not to jeopardize their ability to pay off creditors.
According to experts, the rules proposed by the Fed and other regulators are in some sense a response to a series of failures in the banking sector in the first half of this year, one of the largest among which was the collapse of Silicon Valley Bank. The practical consequences of the introduction of a new system of regulation of the activity of financial institutions, according to many analysts, will be expressed in the fact that medium-sized lenders will face more stringent requirements and at the same time large banks will be forced to allocate more capital.
ABA and JPMorgan Chase CEO Jamie Dimon have publicly stated their disagreement with the proposed requirements. Mr. Dimon, during a speech at a conference in New York in September, said that the new rules could become an obstacle to economic growth. Also, in his opinion, regulators should ensure greater transparency in decision-making. In August, the head of JPMorgan Chase argued that capital requirements could reduce the availability of mortgages and loans. In a comment to the media, he also clarified that the provision of these financial services will be taken out of the banking system if the new rules are approved.
In September, some Republican lawmakers announced that they opposed the revised capital requirements. Member of the House of Representatives Andy Barr, chairman of the Subcommittee on Financial Institutions and Monetary Policy, said that the rules were insufficiently developed and drafted in a hasty manner. In his opinion, the requirements in many of the most important areas are blatantly arbitrary and capricious.
Mayra Rodriguez Valladares, managing director of MRV Associates, says that objections to changes in the monitoring system of financial institutions are a standard and predictable reaction in cases where regulators are trying to update the rules. According to her, in such situations, there are always statements that innovations will cause a reduction in lending or damage the economy in other ways. She noted that since 2010, when the Basel III and Dodd-Frank rules began to be developed and gradually implemented, US banking assets have almost doubled. The net profit of American financial institutions increased by 225% over the same period. From such a point of view, there is a high probability of a positive impact of the new capital requirements, but this is only one of the opinions.