Jun 17, 2019 - 5:00pm

Quick Take: Why the Largest Banks in the U.S. Need More Efficient Oversight

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A customer uses a drive-thru ATM at a Bank of America branch in San Antonio, TX.
A customer uses a drive-thru ATM at a Bank of America branch in San Antonio, TX.

Fill me in:

The largest, most complex banks in the United States have been subject to a considerable increase in regulation under the Dodd-Frank Act and Basel Accords. These new regulations – which require more liquid assets, more capital, and more responsiveness to regulators – make it more difficult for these banks to serve their customers. Policymakers are in the process of correcting the over-reach in regulation, but without sufficient focus on some major financial institutions that make substantial contributions to the U.S. economy.

Members of the House Financial Services Committee recently sent a letter to financial regulators that aptly points out reforms that have a big bang for their buck when it comes to inciting economic growth, such as:

  • Revisiting the capital surcharge imposed on Globally Systemic Import Banks (GSIBs).
  • Exempting inter-affiliate swap transactions within banking organizations from initial margin requirements.
  • Reforming the stress testing regime.

Why does it matter?

The business community strongly agrees that there needs to be healthy competition in the financial sector so companies can shop for the products and services they need to finance their operations, create jobs, and contribute to growth in their communities. Ignoring inefficient financial regulation will make it more difficult, and more expensive, for businesses to make capital investments and create new jobs.

Number to know:

$900 billion. These banks are now more stable and resilient as measured by a 40% increase in high-quality capital – now at over $900 billion – and a doubling of liquid assets. Nearly two-thirds (63%) of businesses approve of federal regulators recalibrating capital requirements for large banks when lending money to small businesses, according to a U.S. Chamber survey.

Our take:

“Financial regulators should review inefficient regulations that are preventing the largest, most complex banks from meeting the needs of their customers, just as they are doing for regional and community banks,” said Tom Quaadman, executive vice president for the U.S. Chamber Center for Capital Markets Competitiveness (CCMC). “Even modest changes – such as recalculating the GSIB surcharge, eliminating initial margin requirements for inter-affiliate transactions, or rationalizing stress tests – would have a big bang for their buck.”

What’s next?

The likelihood of these common sense changes remains unclear, but any reforms will take some time to work through the regulatory process. The U.S. Treasury Department and key voices in Congress have been asking for changes, but financial regulators have not provided a transparent timeline for enacting reforms.

American businesses need a strong message from Washington that capital is being freed up in all corners of our financial system that will ensure they have competitive options to fund their growth.

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