Senator Warren Urges FRB Chair Powell to "Resist Industry Pressure" to Weaken Proposal on Bank Capital Requirements
Commentary by Steven Lofchie
Senator Elizabeth Warren (D-MA) urged Federal Reserve Board ("FRB") Chair Jerome Powell to "resist industry pressure" to weaken the FRB's proposal to implement the final provisions of the Basel III agreement (see previous coverage).
In a Letter to Chair Powell, Senator Warren emphasized that the "common sense" proposal raising large bank capital requirements is a "long overdue step forward" and has "become even more urgent" following the bank failures in March 2023. She argued that the "big bank lobby" is against stronger capital requirements because it "is a direct threat to massive payouts for executives and shareholders." She expressed concern that Mr. Powell's "tepid embrace" of the FRB proposal is an indication that he "may share Wall Street executives' concerns that stronger capital requirements will eat into their bonuses."
Further, Senator Warren told Mr. Powell that his "uncertain positioning" concerning the proposal shows a "broader lack of leadership." She chastised him for "enthusiastically support[ing] deregulation" under the 2018 Dodd-Frank rollback, which nearly brought the banking system "to its knees." She told Mr. Powell that he "wrongly assured the public" that the rollback would still provide tools necessary to protect financial stability.
Senator Warren noted previous statements from Mr. Powell in which he said that he felt "personally accountable" to address the issues surrounding the recent bank failures. She argued that the proposal is an opportunity for him to "accept accountability for [his] failures" and to "resist industry pressure to weaken and further delay the rules."
Commentary
A better interpretation of Mr. Powell's remarks is that he recognized that a primary cause of the bank failures earlier this year was a failure to exercise regulatory authority, as opposed to an absence of regulatory authority.
It is generally the case that when something goes wrong in the financial markets, Senator Warren blames it on some deficiency in regulatory authority and calls for additional legislation. If something else goes wrong, rinse and repeat.
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The Federal Reserve Board, OCC and FDIC jointly proposed amendments that would "substantially" revise capital requirements for large banking organizations to be consistent with international capital standards issued by the Basel Committee on Banking Supervision.
