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A sweeping bank regulatory proposal will be significantly revised by year\u2019s end, Federal Reserve Chair Jerome Powell said Thursday, a potential victory for the large banks that have aggressively opposed the likely changes.<\/p>\n
The proposed rule,\u00a0issued last summer<\/a>\u00a0by the Fed and other regulatory agencies, is intended to implement changes that were negotiated internationally after the 2008 global financial crisis. Among other things, the rule would require the largest banks \u2014 those with more than $100 billion in assets \u2014 to hold more funds in reserve to protect against bad loans and other potential losses.<\/p>\n Large banks, though, have resisted the proposal, known as the \u201cBasel III endgame\u201d and spearheaded by the Fed\u2019s vice chair for supervision, Michael Barr. The banks argue that the proposal would limit their ability to lend and would exceed what is necessary to match the global rules.<\/p>\n Banks aren\u2019t the only opponents of the proposal. The NAACP and some other civil rights groups have expressed opposition out of concern that the proposal would make it harder for Black and Hispanic Americans to obtain mortgage loans.<\/p>\n Powell, under questioning by the Senate Banking Committee during his semi-annual testimony to Congress, acknowledged that the proposal could potentially reduce mortgage lending.<\/p>\n \u201cThere is a risk like that, and we\u2019re very focused on it,\u201d he said.<\/p>\n On Thursday, Powell also repeated a comment he made to\u00a0the House Financial Services Committee Wednesday<\/a>, that the Fed will make \u201cbroad and material\u201d changes to the proposed rule. He put a time frame on those changes Thursday: Powell said he expects that the Fed will reach consensus on the revamped proposal by the end of the year.<\/p>\n Separately, Powell also reiterated his comment from Wednesday that if inflation continued to fall back toward the Fed\u2019s 2% target, which he expects, then the central bank would begin cutting its benchmark interest rate this year.<\/p>\n The Fed\u2019s key rate, now at a 23-year high of about 5.4%, has led to much higher rates for mortgages, auto loans and credit card borrowing. Those higher borrowing costs have likely contributed to widespread public sourness about the economy, which poses a threat to President Joe Biden\u2019s reelection bid.<\/p>\n \u201cWe\u2019re waiting to become more confident that inflation is moving sustainably at 2%,\u201d Powell said. \u201cWhen we do get that confidence \u2014 and we\u2019re not far from it \u2014 it\u2019ll be appropriate\u201d to implement rate cuts, \u201cso that we don\u2019t drive the economy into recession.\u201d<\/p>\n<\/div>\nSubscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up<\/a> for free.<\/div>\n<\/div>\n