Major US lenders have submitted formal requests to the Federal Reserve for further amendments to a draft regulatory package that would lower the amount of capital they are required to hold against potential losses, as policymakers move into the closing phase of a prolonged rewrite of US capital standards.
Their main demands include lower capital charges for trading businesses, the removal of a requirement to hold capital against unused credit card facilities, and further adjustments to soften the effect of the surcharge applied to globally systemic banks, according to five banking industry executives and staff.
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In March, US regulators led by the Federal Reserve published looser draft versions of wide-ranging capital rules.
They said the changes would cut large banks’ loss-absorbing capital by about 4.8%, while arguing that the existing framework is weighing on the economy.
The ‘Basel’ package changes the way banks assess risk and therefore the amount of capital they must maintain.
In a joint comment letter submitted by several leading banking trade associations, the industry said the eight biggest global banks would record a roughly $22bn, or 2.7%, reduction in capital if the proposed Basel amendments, a separate surcharge on large global banks, and annual bank “stress tests” all take effect.
The letter was signed by the American Bankers Association, Bank Policy Institute, Financial Services Forum, Consumer Bankers Association and US Chamber of Commerce.
The letter said the planned changes to key definitions in the credit risk rules could leave the framework out of step with the actual level of risk, leading to capital demands that are set too high and weakening the aim of making the regime more risk-sensitive.
It added that the effect of those changes has neither been properly measured nor clearly recognised by regulators, and warned that finalising revised definitions of “commitment” and “unconditionally cancelable” could alter the capital framework in ways that remain uncertain, despite agencies saying the overall calibration across the framework and stress testing is “appropriate.”
