Wall Street Firms Urge Regulators To Rethink New Bank Capital Rules: Bank Stocks Show Mixed Reaction

Zinger Key Points
  • Wall Street trade associations have called on US regulators to reevaluate proposed bank capital rules, claiming they violate the law.
  • The Fed, FDIC, and the OCC announced a plan in July for stricter capital requirements.

Wall Street trade associations are appealing to U.S. regulatory bodies to reconsider their proposal concerning comprehensive bank capital rules.

What Happened: Several Wall Street trade associations are urging U.S. regulators to reevaluate their proposed bank capital rules, Bloomberg reported.

The groups include the Bank Policy Institute, American Bankers Association, Securities Industry and Financial Markets Association and U.S. Chamber of Commerce

Regulators plan to enforce stricter capital requirements for large banks. The Federal Reserve, Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency want to strengthen banks’ financial cushions against unforeseen losses.

However, trade associations representing Wall Street banking firms argued on Tuesday that the proposed rules need to be reassessed.

See Also: August CPI Surge Stuns Economists: Rate Hike Ahead Or Just A Blip?

What Wall Street Wants

The organizations argue that using secret information goes against the rules stated in the Administrative Procedure Act. These rules require agencies to share the data and analyses they use when making rules with the public. These groups are calling for the regulatory bodies to disclose all relevant materials.

This letter marks the initial move in the industry’s battle against the stringent capital regulations. Banks assert that these measures will impede their competitive standing. The regulatory actions in the U.S. are a component of Basel III, an international regulatory framework introduced in response to the financial crisis of 2008.

Why It Matters: The proposed capital rules have been a contentious issue since their introduction. While regulators aim to fortify the financial stability of banks, the industry argues that such rules could potentially stifle competition. The outcome of this disagreement could have significant implications for the banking sector’s resilience and competitive landscape.

Stock reactions: The Financial Select Sector SPDR Fund XLF was 0.2% higher on Wednesday, following a hotter-than-expected CPI inflation report in August. Among large banks Morgan Stanley MS was the outperformer, up 2.3%. Small and mid-sized banks traded lower for the day. The SPDR Regional Banking ETF KRE fell 1.2%, with Zions Bancorporation ZION underperforming within the industry.

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