Latest news with #KevinFromer
Zawya
13-05-2025
- Business
- Zawya
Banking sector says easing of US leverage rules could support Treasury market
The banking industry is optimistic that U.S. regulators will soon move to change how much capital they set aside against typically safe investments, particularly after the turmoil in Treasury markets last month. Such a move to revamp the "supplementary leverage ratio" could reduce the amount of cash banks must reserve, freeing them up for more lending or other activities, and could incentivize banks to play a larger role in intermediating Treasury markets. "Current leverage-based capital requirements are outdated and at odds with financial stability and economic growth. Reform is needed quickly to better serve U.S. taxpayers, capital markets, consumers, businesses, and the economy," said Kevin Fromer, the president and CEO of the Financial Services Forum, which represents the nation's largest banks. Regulators have flagged the SLR as meriting reconsideration and are mulling whether to tweak the rule's formula to reduce big banks' burdens or provide relief for extremely safe investments, like Treasury bonds. The debate is driving industry hopes that agencies could as soon as this summer propose an overhaul, according to three sources familiar with the matter. Bank lobby groups, including the Forum and the Bank Policy Institute, which also represents larger banks, have been pushing for the change. Treasury Secretary Scott Bessent told lawmakers last week that a revamp was a "high priority" for the three regulatory bodies charged with the rule: the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. Banks have argued for years that the SLR, established after the 2007-2009 financial crisis, should be reformed. They contend it was meant to serve as a baseline, requiring banks to hold capital against even very safe assets, but has grown over time to become a binding constraint on bank lending. BPI President and CEO Greg Baer called reform "overdue and welcome" in a statement to Reuters. When asked by Congress in February if the leverage requirements discouraged banks from helping intermediate the Treasury market, Fed Chair Jerome Powell agreed, and said it was time to revisit the issue. Such reforms are on a long wishlist the banking industry hopes to advance with the Trump administration, which has made deregulation to spur economic growth a top priority. Spokespeople for the Fed, FDIC and Office of the Comptroller of the Currency, which shares responsibility for the SLR, declined to comment. OPTIONS DEBATED Currently, all banks are required to hold 3% of their capital against their leverage exposure, which is their assets and other off-balance sheet items like derivatives. The largest global banks must hold an extra 2% as well in what is known as the "enhanced supplementary leverage ratio." Regulators could provide relief by simply exempting Treasury bonds and central bank deposits from calculations of the SLR. That is the approach the Fed took when it provided temporary emergency relief during the COVID-19 pandemic. Or, in what three industry sources believe is a more likely option, they could look at tweaking the "enhanced" SLR, which instead of exempting Treasuries broadly refines the formula, resulting in a lower ratio. Regulators tried to ease that requirement in 2018, during President Donald Trump's first term in the White House, setting the extra capital based on a bank's specific risk profile, but it ultimately failed to advance. The largest banks, which are also the most prominent Treasury market participants, would stand to benefit most directly from the second option. Banks hope any leverage relief coincides with a broader push to overhaul other capital requirements, including the so-called "GSIB surcharge" applied to the largest, most complex banks, and an ongoing effort to overhaul annual "stress tests" of big bank finances. While discussing quarterly earnings last month, several bank executives touted SLR reform alongside other capital relief. "The SLR requires us to hold capital to level against riskless assets and Treasuries and cash; that doesn't make a lot of sense," Bank of America CEO Brian Moynihan said in April. Proponents of the SLR argue it is critical to have a tool that is blind to risk as a key backstop, and a simple, direct requirement on leverage can help ensure no dangers are overlooked. But such relief could potentially lend more liquidity to Treasury markets, which have struggled to function amid periods of intense stress. The $29 trillion Treasury market, a cornerstone of the global financial system, saw an aggressive selloff in April, sending U.S. borrowing costs higher. Market expectations about potential reform helped push the spread of swap rates over Treasuries higher in recent months, as Trump's victory in the November 5 presidential election fueled hopes of broader deregulation in financial markets. Swap spreads, which reflect the gap between the fixed rate on an interest rate swap and the yield on a comparable Treasury security, are often used to hedge or bet on shifts in rates. They tightened dramatically, however, during the bond selloff that followed Trump's April 2 "Liberation Day" tariff announcement. (Reporting by Pete Schroeder and Davide Barbuscia; Additional reporting by Saeed Azhar, Nupur Anand and Tatiana Bautzer; Editing by Megan Davies and Paul Simao)
Reuters
13-05-2025
- Business
- Reuters
Banking sector says easing of US leverage rules could support Treasury market
WASHINGTON/NEW YORK, May 13 (Reuters) - The banking industry is optimistic that U.S. regulators will soon move to change how much capital they set aside against typically safe investments, particularly after the turmoil in Treasury markets last month. Such a move to revamp the "supplementary leverage ratio" could reduce the amount of cash banks must reserve, freeing them up for more lending or other activities, and could incentivize banks to play a larger role in intermediating Treasury markets. "Current leverage-based capital requirements are outdated and at odds with financial stability and economic growth. Reform is needed quickly to better serve U.S. taxpayers, capital markets, consumers, businesses, and the economy," said Kevin Fromer, the president and CEO of the Financial Services Forum, which represents the nation's largest banks. Regulators have flagged the SLR as meriting reconsideration and are mulling whether to tweak the rule's formula to reduce big banks' burdens or provide relief for extremely safe investments, like Treasury bonds. The debate is driving industry hopes that agencies could as soon as this summer propose an overhaul, according to three sources familiar with the matter. Bank lobby groups, including the Forum and the Bank Policy Institute, which also represents larger banks, have been pushing for the change. Treasury Secretary Scott Bessent told lawmakers last week that a revamp was a "high priority" for the three regulatory bodies charged with the rule: the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. Banks have argued for years that the SLR, established after the 2007-2009 financial crisis, should be reformed. They contend it was meant to serve as a baseline, requiring banks to hold capital against even very safe assets, but has grown over time to become a binding constraint on bank lending. BPI President and CEO Greg Baer called reform "overdue and welcome" in a statement to Reuters. When asked by Congress in February if the leverage requirements discouraged banks from helping intermediate the Treasury market, Fed Chair Jerome Powell agreed, and said it was time to revisit the issue. Such reforms are on a long wishlist the banking industry hopes to advance with the Trump administration, which has made deregulation to spur economic growth a top priority. Spokespeople for the Fed, FDIC and Office of the Comptroller of the Currency, which shares responsibility for the SLR, declined to comment. Currently, all banks are required to hold 3% of their capital against their leverage exposure, which is their assets and other off-balance sheet items like derivatives. The largest global banks must hold an extra 2% as well in what is known as the "enhanced supplementary leverage ratio." Regulators could provide relief by simply exempting Treasury bonds and central bank deposits from calculations of the SLR. That is the approach the Fed took when it provided temporary emergency relief during the COVID-19 pandemic. Or, in what three industry sources believe is a more likely option, they could look at tweaking the "enhanced" SLR, which instead of exempting Treasuries broadly refines the formula, resulting in a lower ratio. Regulators tried to ease that requirement in 2018, during President Donald Trump's first term in the White House, setting the extra capital based on a bank's specific risk profile, but it ultimately failed to advance. The largest banks, which are also the most prominent Treasury market participants, would stand to benefit most directly from the second option. Banks hope any leverage relief coincides with a broader push to overhaul other capital requirements, including the so-called "GSIB surcharge" applied to the largest, most complex banks, and an ongoing effort to overhaul annual "stress tests" of big bank finances. While discussing quarterly earnings last month, several bank executives touted SLR reform alongside other capital relief. "The SLR requires us to hold capital to level against riskless assets and Treasuries and cash; that doesn't make a lot of sense," Bank of America CEO Brian Moynihan said in April. Proponents of the SLR argue it is critical to have a tool that is blind to risk as a key backstop, and a simple, direct requirement on leverage can help ensure no dangers are overlooked. But such relief could potentially lend more liquidity to Treasury markets, which have struggled to function amid periods of intense stress. The $29 trillion Treasury market, a cornerstone of the global financial system, saw an aggressive selloff in April, sending U.S. borrowing costs higher. Market expectations about potential reform helped push the spread of swap rates over Treasuries higher in recent months, as Trump's victory in the November 5 presidential election fueled hopes of broader deregulation in financial markets. Swap spreads, which reflect the gap between the fixed rate on an interest rate swap and the yield on a comparable Treasury security, are often used to hedge or bet on shifts in rates. They tightened dramatically, however, during the bond selloff that followed Trump's April 2 "Liberation Day" tariff announcement.
Reuters
27-03-2025
- Business
- Reuters
Focus: Bank bosses call for softer rules, Trump-nominated regulators listen
NEW YORK, March 27 (Reuters) - U.S. banking giants are pushing for a swath of lighter regulations from President Donald Trump's administration, and say they are heartened by signals that regulators are listening. Bank bosses want to cut reporting requirements on some transactions, limit regulators' enforcement powers, speed up deal approvals and overhaul capital rules, four industry executives told Reuters. Those asks would include raising the bar on an anti-money-laundering rule requiring reporting of $10,000 cash transactions and limiting the use of confidential regulatory warnings, known as Matters Requiring Attention, two of those sources said. Another major change could be watering down annual stress tests, one of those sources said. Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here. The industry has gotten encouraging signs from public statements from the administration, even as bankers wait for head regulators to be installed. "There has been receptivity to our concerns," said Kevin Fromer, head of the Financial Services Forum, which represents the largest global banks and has been pushing for lighter capital and supervisory controls. "We're at the early stages of that conversation." Public statements by regulators have indicated a change of focus. Treasury Secretary Scott Bessent told the Economic Club of New York this month that the financial regulatory agenda needed "a fundamental refocusing of supervisors' priorities," while Travis Hill, acting FDIC head, said at a bankers conference in Washington that regulators need to be " more focused on the real fundamental financial risks and less on the administration around that." REGULATORY CHANGE The changes being pushed could amount to some of the most significant bank deregulation in years. Most recently, some larger banks saw rule relief in 2019 under a 'tailoring' project undertaken in the first Trump administration. The wishlist for sweeping regulatory changes comes after the industry fought Biden-era regulators who sought to implement stricter capital rules known as Basel endgame last year. The proposal was effectively scrapped in a major victory for banks, and now the industry is seeking further relief. Some bankers contend that regulators in recent years have been unfairly heavy-handed even as large institutions report robust earnings and show resilience through the pandemic and 2023 industry turmoil, when three regional lenders failed. Still, proponents of tougher rules argue they provide critical guardrails for the financial system, protecting consumers and the broader economy. "Financial rules protect Main Street families while weakening them enrich Wall Street bankers," said Dennis Kelleher, head of the advocacy group Better Markets, which pushes for stricter financial rules. Treasury spokespeople did not respond to a request for comment. Spokespeople for agencies that supervise banks - the Federal Deposit Insurance Corporation, and Federal Reserve - declined to comment. The White House did not respond to a request for comment. SUPERVISION, ENFORCEMENT Bank bosses have a broader, ambitious goal to water down supervision and enforcement, three of the sources said. The industry seeks to rein in regulators' focus to material financial risks that can be quantified. Banks have complained for years that examiners expanded scrutiny far beyond core financial matters and into areas such as corporate governance, computer systems and compensation, according to the Bank Policy Institute, opens new tab, a trade association representing large U.S. lenders. Industry leaders aim to water down MRAs handed down by regulators such as the Federal Reserve and the Office of the Comptroller of the Currency (OCC), three sources said. Lenders treat MRAs as urgent matters, devoting many employees to repair work to avoid fines or other punishments. BPI said some MRAs represented "illegal overreach" by regulators, who should concentrate on material risks to banks' financial condition. Bessent echoed that concern in his New York speech, calling on agencies to "drive a culture that focuses on material financial risk rather than box checking." Lenders are also pushing for a broad overhaul of the Fed's so-called stress tests, an annual exercise aimed to measure banks' abilities to handle potential crises. The Fed signaled late last year it was open to changes to make the exam more transparent. BPI led a lawsuit against the Fed late last year demanding such changes. 'OUTDATED' CASH RULE One of the easiest regulations to adjust could be an anti-money laundering (AML) rule requiring banks to file reports on customers who make more than $10,000 in cash transactions in a day, according to one of the sources, an industry executive who declined to be identified discussing supervisory matters. That would require rewriting a rule within The Treasury Department. AML has been cited by lobby groups as contributing to 'debanking', or when a bank closes an individual's account. President Donald Trump publicly complained of 'debanking' of conservatives earlier this year. 'The requirements that we have ... under the anti money-laundering laws and the various sanctions regimes, the general laws globally are quite onerous," said Kathryn Ruemmler, Chief Legal Officer and General Counsel of Goldman Sachs (GS.N), opens new tab at a conference this month. The industry has long complained that the limit is outdated and generates unnecessary filings. It would welcome a higher threshold such as $75,000 or even $100,000, the source said. One leading bank regulator has endorsed the idea. Rodney Hood, the acting head of the Office of the Comptroller of the Currency, which monitors national banks, said in a statement to Reuters that the current limit is "outdated and burdensome," and backed an increase among other rule easings. Congress is set to question Jonathan Gould, Trump's pick to permanently lead the OCC, on Thursday.
