Democrats Split on Bank Regulations
Democrats are finding themselves divided over the issue of tougher bank regulations. Some lawmakers from the party are joining their Republican counterparts and bank executives in questioning whether proposed rules by the Federal Reserve and its partner agencies go too far. Critics argue that these regulations could potentially slow economic growth and restrict lending to critical sectors.
In July, the Fed, along with the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, proposed that banks maintain higher levels of shareholder-funded capital as a safeguard against potential losses on lending activities like mortgages and corporate loans. This proposal aims to adhere to an international agreement known as Basel III, which was created after the 2008 financial crisis with the goal of strengthening the global financial system.
During a recent House Financial Services Committee hearing, Democratic Representative David Scott of Georgia expressed his concern about the economic consequences and potential impact on banking institutions as they engage in critical market activity.
Traditionally, Democrats have been supportive of stricter financial regulations, and the Basel process is being overseen by Michael Barr, the Fed's Vice Chair for Supervision, who was appointed by President Joe Biden. However, these new capital requirements could jeopardize lending to sectors of the economy that Democrats favor.
Democratic Representative Brad Sherman of California criticized the proposal specifically for increasing the amount of capital banks would need in order to invest in clean-energy tax credits.
Proposed Rules Could Penalize Banks and the Housing Market
Rep. Gregory Meeks and numerous Republicans have expressed their concerns over the new rules that could potentially penalize banks for participating in a "special purpose credit program" aimed at facilitating home loans for historically disadvantaged communities. Meeks, a New York Democrat, emphasized his worries about the impact on homeownership.
These concerns raised by both Democrats and Republicans echo sentiments conveyed in a letter signed by all 29 committee Republicans, demanding that Attorney General Barr, along with the heads of the FDIC and OCC, reconsider and rework the proposal entirely.
The discontent is not limited to lawmakers. Bank executives, including JPMorgan Chase & Co. CEO Jamie Dimon, have voiced their opposition to the rules. Dimon spoke about the rules at the Barclays Global Financial Services Conference on Monday, highlighting that they could put U.S. banks at a disadvantage compared to their European counterparts.
Dimon warned that under the proposed rules, U.S. banks would be required to hold 30% more capital than their European counterparts. He also questioned the rationale behind straying so far from the international agreement like Basel if U.S. regulators were willing to diverge significantly from their foreign counterparts.
Brian Gardner, a policy strategist with Stifel, suggests that this opposition from lawmakers and banking executives may lead regulators to either significantly revise or completely withdraw the proposal. Gardner believes that regulators may take this opportunity to address criticisms raised not only by the banking industry but also by housing groups concerned about the availability of credit for residential mortgages.
In summary, while proposed rules have faced backlash from both lawmakers and various industry representatives, the result may lead to a reworked version that incorporates feedback and addresses widespread concerns.
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