House GOP Members Request Withdrawal of Federal Reserve's Proposed Capital Requirements Plan

The Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (FDIC) are facing mounting pressure to reconsider and rewrite a proposal that would increase capital requirements for the biggest U.S. banks. The proposal, which has drawn an "unprecedented number" of comments, has been met with broad-based opposition, as more than 97% of the comments "call for withdrawal, a reproposal, or otherwise expressed significant concerns" with all or part of the rule, according to Rep. Patrick McHenry, the House Financial Services Committee chair.

McHenry and 28 other Republicans in Congress urged regulators to withdraw the July proposal on Wednesday. In a letter addressed to Federal Reserve Chair Jerome Powell, Acting Comptroller of the Currency Michael Hsu, and FDIC Chair Martin Gruenberg, they argued that the proposal is procedurally flawed, lacks justification, and is deficient in rigorous quantitative analysis.

The proposal requires the largest U.S. banks to hold roughly 19% more capital. However, the rewrite of the capital requirements proposal is expected to significantly reduce the increase in capital that large banks would be forced to hold. This reduction is particularly noticeable in how banks calculate potential losses from operational risks.

Banks have been pushing regulators to reduce the risk weights for fee income associated with lending services, such as investment banking. Officials are also expected to at least reduce higher risk weights on mortgages to low-income borrowers and on renewable energy tax credits.

In response to McHenry's letter, the Fed has confirmed that it will respond. The letter, which was also sent in September, criticised the "belated" request for supplemental data and comment period extension. McHenry also demanded "rigorous" quantitative analysis and that any new resulting proposal be issued first as an advance notice of public rulemaking.

Barr, the author of the original proposal, has begun rewriting the proposal, working with Powell, who is seeking "significant" changes, according to a government official who spoke to Reuters. However, among McHenry's concerns is how the comments will change the proposal, and he has criticised the "belated" request for supplemental data and comment period extension.

The government official who will conduct the revised proposal drafting for capital requirements for the largest US banks has not been identified in the provided search results. The comment period for the proposal has ended, but regulators have not yet indicated how and when they would further develop it.

As the debate over the capital requirements proposal continues, it is clear that the concerns extend beyond the banking industry. McHenry on Wednesday criticised the "belated" request for supplemental data and comment period extension, stating that the broad-based opposition to the proposal makes it clear that it is not just the banking industry that has concerns. The final outcome of this proposal will have significant implications for the financial sector and the wider economy.

House GOP Members Request Withdrawal of Federal Reserve's Proposed Capital Requirements Plan