Capital Proposal by Barr anticipated to impact lending costs minimally

In a speech to the American Bankers Association on Monday, Vice Chair for Supervision of the Federal Reserve, Michael Barr, countered accusations that upcoming capital regulations would impede lending operations.

, and Administrator

2025 September 13 . 4:48 AM

2 min read

Proposed capital plan by Barr expects minimal influence on borrowing expenses

Capital Proposal by Barr anticipated to impact lending costs minimally

The Federal Reserve, along with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), unveiled a proposal in July 2023 to raise capital requirements for the largest banks in the United States. The move aims to align U.S. banks more closely with international standards.

Under the proposal, the eight global systemically important banks in the U.S. would see a roughly 19% increase in the amount of capital they'd have to hold. The phasing in of the rule is scheduled to take place between July 2025 and June 2028.

The proposal is projected to raise capital for large banks. This increase is due to the realization that perhaps large organizations not subject to the pass-through of unrealized losses should have been in the past, as stated by Federal Reserve's Vice Chair for Supervision, Michael Barr.

Barr defended the proposal, acknowledging that the cost of funding for a specific loan would depend on the specific risk weight for that activity. He also mentioned that there may be other channels by which higher capital requirements could matter.

The proposed changes follow this spring's banking crisis, which saw the collapse of three regional lenders. Regulators say the increased capital requirements they are proposing would help shield banks from future failures.

Barr pushed back on claims that the stringent changes would have a negative impact on the economy by hampering lenders' ability to extend credit. He stated that trading has generated outsized losses at large banks and is an area where current rules have shortcomings.

The ABA CEO, Rob Nichols, asked Barr why the capital increases are necessary given the strength of the U.S. financial system. Barr responded that the safety and soundness of the banking system is strong but improvements can still be made.

Regulators are taking public comment on the proposed capital requirements until Nov. 30. The final rule is expected to be issued next year. Barr did not mention purchasing licensing rights in the provided paragraphs.