(Repeats story from Thursday, June 9)
* Banks reeling from surprisingly tough capital talk
* Banks set to launch pushback campaign
* U.S. debate has backdrop of global capital reforms
By Dave Clarke and David Henry
WASHINGTON, June 9 Large U.S. banks are
crafting their strategy to get regulators to back off from
tough talk that they may force the riskiest firms to hold twice
as much capital as smaller banks.
The bankers' new offensive comes ahead of several meetings
of international regulators set up over the next few weeks with
the hope of having a "capital buffer" proposal in July,
according to a person familiar with the talks.
The regulators are deciding how much extra capital the
biggest firms, whose failure would do the most damage to
financial markets and the economy, will have to hold above the
agreed-upon Basel III framework calling for a minimum of 7
Big banks have been bracing for a buffer that could add as
much as 3 percentage points, for a total of 10 percent.
Federal Reserve Governor Dan Tarullo raised the ante last
week when he said the Fed is considering an option where the
largest banks may have to hold between 8 percent to 14 percent
in total capital. [ID:nN03155393]
That shocked the banks and sent them scrambling for a way
to fight back.
"It certainly got our attention," said one industry
Banks will be launching a multi-prong attack to exploit the
range of capital hawk and dove regulators, and to convince
lawmakers that it's a bad thing for America to have banks
sitting idly on capital.
"The regulators do listen to what folks do on Capitol
Hill," said Wayne Abernathy, a top official at the American
Bankers Association. "They are accountable to the people's
The industry faces two significant obstacles.
One, big banks are still wildly unpopular after the
2007-2009 financial crisis that forced a $700 billion taxpayer
bailout. A key example came on Wednesday when bankers lost a
vote in the Senate to postpone a severe reduction in how much
they can charge for processing debit card transactions.
Two, it's hard to sex up "Basel III capital standards" to
"When you do mention Basel, your average member of Congress
thinks 'that pairs well with tomato and mozzarella,'" said a
The banking executive, who asked not to be named so as not
to inflame the capital debate, said the industry is going to
hammer home four messages to lawmakers and regulators:
* Holding capital hostage will hurt the struggling economy
because it will mean fewer loans at a time when lending is
* Requiring massive capital buffers is an admission by
regulators that last year's Dodd-Frank financial reform law
does not accomplish its goal of reducing risk.
* If banks have to hold on to capital instead of making
loans, borrowers will turn to the "shadow banking sector" that
has little to no oversight.
* Tough U.S. standards will hobble banks against
international competitors, making the United States a less
desirable place to do business.
Banks are unsure if Tarullo's suggestion of an extreme 14
percent capital level truly represented where the Fed is
headed, or was a scare tactic that will be scaled back.
A person familiar with the approaches being contemplated by
regulators said Tarullo was laying out one theoretical
scenario, and the Fed has been supportive in the Basel process
of an additional requirement for the largest banks in the 3
A look at big banks' current capital shows there's a lot at
stake. For a graphic of their capital levels please see:
Of the six biggest U.S. commercial banks, Bank of America
(BAC.N) would likely have to do the most to raise its capital
ratio, according to estimates from investment firm Keefe,
Bruyette & Woods.
BofA's capital ratio is 4.5 percent, KBW calculated, using
new Basel III measurement methods.
Citigroup's (C.N) ratio is 5.4 percent and JPMorgan's
(JPM.N) 6.2 percent, KBW estimates. U.S. Bancorp has the
highest ratio of the six, at 7.4 percent.
In the stock market, banks have taken a beating in recent
weeks in part because higher capital standards would reduce
The public got a high-octane preview of the pushback
earlier this week when JPMorgan Chief Executive Jamie Dimon
challenged Fed Chairman Ben Bernanke about regulatory
collateral damage at a televised banking conference.
"Has anyone bothered to study the cumulative effect of all
these things?" Dimon asked. Bernanke said that's not possible
given how many changes have been made.
The rare public exchange got Wall Street cheering.
"You need a voice like that to say, 'Enough is enough,'"
said Christopher Mutascio, a bank analyst at Stifel Nicolaus.
"He was spot on. My only question is what took him so long."
Going forward, bankers' pleas to regulators will mostly be
behind closed doors and may seek to play regulators off each
Bank officials said they were heartened by a speech Monday
by U.S. Treasury Secretary Timothy Geithner who said other
financial system reform measures that have been taken reduce
the amount of extra capital big banks should have to hold.
Geithner's comments have raised the question of whether
Treasury will pressure the Fed and other regulators to temper
their proposals or continue to let them take the lead.
Frederick Cannon, bank analyst at Keefe, Bruyette & Woods,
said it's tough to say who has right on their side --
regulators keeping a tight leash on banks that played a major
role in the financial crisis, or the banks who say they're
being held back from helping heal the American economy.
"On scale, the Fed has the upper hand. On the overall
regulatory environment on the banks, Dimon and the bankers have
the upper hand," Cannon said.
(Reporting by Dave Clarke in Washington and David Henry in New
York, Editing by Gary Hill)