Jerome Powell met with Jamie Dimon and other CEOs behind closed doors

Powell told bank chiefs, including Jamie Dimon of JPMorgan Chase & Co. and Jane Fraser of Citigroup Inc., that the public will have a chance to weigh in on key changes to the plan, according to people with knowledge of the matter last month. meeting hosted by the Financial Services Forum, a trade group for the largest US banks.

While it is not unusual for Powell or other Fed governors to meet with the bank’s top group of CEOs, the talk is the latest sign that he is using his influence to try to forge consensus from industry and Fed governors — and to push the pack all the way down. line. The effort, a response to the 2008 global financial crisis, has been in the works for more than a decade. It has faced stiff opposition from the industry, which is preparing for a potential legal battle.

The Fed has already offered other regulators a dramatically weaker version of the bank capital overhaul, alarming some agency officials. That has led some observers to wonder whether the central bank’s board, which prides itself on consensus, will give too much ground to the proposal, known as the end of Basel III.

“I was disturbed by Powell’s testimony last time on the Hill when he said he expected the final Basel rule to have ‘broad support among the broader community of commentators on all sides,'” Jeremy said Kress, a former Fed banking policy attorney who now teaches business law at the University of Michigan. “This is a dangerous standard because it causes the Fed to bend to the will of the banks.”

Other Fed watchers say Powell is simply following guidelines set by law.

“There is a statutory requirement that the Federal Reserve must follow in setting major banking policy,” said Thomas Hoenig, former president of the Federal Reserve Bank of Kansas City and now a distinguished senior fellow at the Mercatus Center at George Mason University. “It is not, as such, consensus building, but instead setting the right policy and seeking input and comments from industry to make sure its policy achieves the intended results.”

A Fed spokesman and a representative of the Financial Services Forum declined to comment on the meeting.

The July 19 event in Washington also drew Brian Moynihan of Bank of America Corp. and Ted Pick of Morgan Stanley, according to people familiar with the meeting. Fed Vice Chairman for Supervision Michael Barr, seen as the architect of the original proposal, did not attend, some of the people said.

The initial draft, published in July 2023 by the Fed, the Federal Deposit Insurance Corp. and the Office of the Controller of the Currency, called for an across-the-board 16% increase in the capital banks must hold as a cushion against financial shocks.

But the Fed later showed other regulators a three-page document with potential revisions that suggested an increase of up to 5 percent. The revisions could come back to key parts of the landmark proposal – including one that could have had a big effect on big banks with sizable trading businesses.

Powell told US lawmakers last month that there had been no final decision on any changes to the proposal – but “quite a bit of progress”. Some FDIC and OCC officials have indicated privately that they will resist any capital increase they deem too low.

Others expressed concern that the Fed could move forward with a revised proposal if the three regulators fail to get on the same page.

“A single agency reproposal — but with the expectation that a future final rule will be issued jointly by the three agencies — would be unprecedented, create confusion, and lead to a number of practical and legal questions,” Federal Deposit Insurance Corp . , Vice President Travis Hill, a Republican, said last month.

At the Financial Services Forum meeting, Powell was asked whether the Fed would act independently of other regulators when unveiling key revisions and soliciting public comments, according to people with knowledge of the meeting. Some of them said they were left with the impression that it was a possibility.

Powell told lawmakers in July that it was important for regulators to reach something comparable to other large jurisdictions. At the meeting with bank CEOs, he mentioned the European Union’s Basel effort, noting that his version would lead to an overall capital increase of 10 percent, according to people familiar with the meeting. Average UK growth would be around 3%.

Powell’s comments to banks on the capital proposal were described as high-level, focused on how he plans to reach a final rule, in part by seeking new public comment and releasing a study on the proposal’s impact, have they said.

The president told banks they should come to the Fed with problems now to avoid legal trouble, the people said.

The Bank Policy Institute said in January it had retained corporate lawyer Eugene Scalia to fight regulators if they don’t agree to a final rule with significant changes.

The Washington trade group, along with the Financial Services Forum, the Securities and Exchange Industry Association and the U.S. Chamber of Commerce, sent a letter to the agencies saying the capital plan violated the Administrative Procedure Act, which governs the process. development of regulations.

“In this world where people feel forced to go to court more often and where the courts listen, bank regulators will need to become more mindful of the rights of the banks they regulate and the impact they have,” a Scalia said in a March podcast with Bloomberg Intelligence analysts Nathan Dean and Elliott Stein.

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