Powell: Regulators will 'move as a group' on Basel re-proposal

Enjoy complimentary access to top ideas and insights — selected by our editors.

Bloomberg News

WASHINGTON — Federal Reserve Chair Jerome Powell said federal regulators will act as one on a revised capital proposal with an eye toward finalizing it "in the first half of next year."

During his post-Federal Open Market Committee press conference on Wednesday, Powell said he was involved in the revisions to the so-called Basel III endgame and supports putting them out for comment jointly with the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. But he doesn't know when that process will begin in earnest.

"We don't have a calendar date for that," Powell said. "As for the other agencies, the idea is that we're all moving together, we're not moving separately. So I don't know exactly where that is, but the idea is that we will move as a group to put this again out for comment, and then the comments will come back 60 days later, and we'll dive into bringing this to a conclusion sometime the first half of next year."

The Basel III endgame represents the U.S. implementation of an international regulatory accord from 2017. Originally proposed last summer, the reform package drew immense pushback from the banking industry and beyond, resulting in Powell promising "broad and material changes" to the rule.

Fed Vice Chair for Supervision Michael Barr outlined his plan for revising the controversial capital proposal in a speech last week. He said the adjusted calibration would result in a capital increase of 9% for the nation's largest banks, down from the 19% called for in the initial proposal.

Powell said the changes were negotiated and agreed upon jointly by the three agencies, but he emphasized that the revisions did not constitute a final rule and the proposal could still be subject to further change.

"That's not a final proposal," Powell said. "We're putting them out for comment, we'll take [those] comments and make appropriate changes."

Will regulators hit the gas or brakes on remaining post-Basel reforms?

In his speech, Barr called for narrowing the scope of the reform by largely excluding banks with between $100 billion and $250 billion of assets, referred to as category IV institutions in the Fed's regulatory tailoring framework. That strata of banks would still see their capital requirements increased as a result of having to account for unrealized gains and losses in their securities portfolios — known as accumulated other comprehensive income, or AOCI.

Barr detailed several specific changes to the proposal, including substantial reforms to the treatment of operational risk, which had been particularly vexing for banks. He also detailed changes to calculating risk weights related to market-making activity and derivatives, among other things. 

Despite the suggested revisions, the industry remains skeptical of the plan. Executives and industry groups are waiting for further details before passing judgment, but in the immediate aftermath of Barr's speech, they said the agencies had yet to justify the need for increasing capital requirements at all. 

During his press conference, Powell declined to weigh in on another regulatory development from the past week: the move by the FDIC, the OCC and the Justice Department to finalize revisions to their merger and acquisition review practices. 

When asked what the Fed must do to align itself with the other agencies, he deferred to the vice chair for supervision on the issue.

"I would bounce that question to Vice Chair Barr," Powell said. "It's a good question but I don't have that today."