Wall Street banks are close to achieving a significant easing of regulatory restrictions imposed on capital, with support from Republican officials in the administration of US President Donald Trump, but they are seeking to ensure the continuity of these changes in the long term, which may require support from Democrats as well.
The Federal Reserve is working to finalize, by the end of the year, the largest review of bank capital rules since the global financial crisis between 2007 and 2009. Although Trump appointed four of the seven members of the Board of Governors, the banks hope that Michelle Bowman, the Board's Vice President for Banking Supervision, will be able to secure democratic support for the amendments, making it more difficult to undo them in the future, according to what six industry executives said.
These efforts come at a time when the process of preparing the rules, which took years and witnessed sharp disagreements, is approaching its end, while independent analysts expect that the Democrats will win one or both chambers of Congress next month.
Democratic lawmakers said they intend to scrutinize the work of Trump agencies and companies that have benefited from shifts in regulatory policies. Bank officials are currently considering ways to protect the gains they have made if Democrats consolidate their influence next year, or regain the White House in 2028.
“Bipartisan, consensus-based outcomes, for the most part, stand the test of time,” said Michael Bright, CEO of the Structured Finance Association. He added that market expectations indicate that the Federal Reserve is seeking to reach a broader consensus.
Democrats tend to support tougher rules to prevent costly bank bailouts burdened by taxpayers, while Republicans often argue that too much regulation could limit lending and economic growth.
Based on this argument, in March, Bowman proposed amendments that would reduce the capital requirements of major banks by about 4.8 percent, in a major shift from a plan proposed in 2023 led by her Democratic predecessor, Michael Barr, which would have led to an increase in those requirements by about 20 percent.
The banks opposed Barr's plan, and succeeded in pushing Republicans in Congress and dozens of Democrats to pressure the Federal Reserve to reconsider it. Which led to the rule-making process extending until the Trump administration.
Barr stepped down as Vice Chairman of the Council for Banking Supervision early last year, saying he wanted to avoid a legal battle with Trump, who was reportedly planning to strip him of the position. But he remains a member of the Board of Governors and has opposed Bowman's proposal, warning that it would increase risks to the financial system.
The other two council members appointed by Democratic presidents, Lisa Cook and Philip Jefferson, voted in favor of the proposals, but said they would evaluate the final rules based on their content. “It is essential that we strike the right balance,” Cook said.
Some major banks are pressing Bowman for additional relief, including amendments that would reduce additional fees for capital requirements imposed on global systemically important banks.
Executives and academics believe that the two members' support for the final set of rules will make it less likely that Democrats will target it later. Jeremy Kress, a law professor at the University of Michigan, said two or more dissenting votes “would delegitimize the final rule.”
The Bank of Canada is likely to raise its key interest rate by 25 basis points on Wednesday, in a pre-emptive move to prevent inflation caused by rising energy prices from spreading to the rest of the economy, according to forecasts from financial markets and economists.
This will be the first rate hike since July 2023. “I think the situation has probably exceeded the Bank of Canada’s level of comfort,” said Doug Porter, chief economist at BMO Financial Group.
Data related to the housing, manufacturing, and wholesale trade sectors indicate that economic growth in the third quarter will likely be much lower than its level in the second quarter. The Bank of Canada is scheduled to announce its decision on Wednesday at 9:45 a.m. EST.
