REUTERS

Now that regulators in Washington have unfurled a hefty reform package of post-financial crisis capital regulations, banking industry advisers are honing in on what they consider most disruptive, including risk management requirements that could affect real estate lending, consumer credit and wealth management.

In a joint proposal on July 27, the top three US bank regulators proposed a thousand-page overhaul that would in aggregate require banks to set aside an additional 16 percent in capital the regulators believe is needed to strengthen the financial system.

By increasing the degree of risk attributed to certain assets, the proposed rules would require banks to hold proportionately more capital, potentially eating into returns on equity and profits. Industry lobby groups such as the Financial Services Forum (FSF), the Bank Policy Institute and the Securities Industry and Financial Markets Association have argued this will make it harder to lend to consumers and warn it will slow the economy.

Though the spring of 2023 saw three of the four biggest bank failures in US history, the FSF reacted to the proposal by saying the Federal Reserve’s own stress tests show the largest banks were sound and well capitalised, making the proposal “a solution without a problem.”

Industry analysts see areas which the well-financed bank lobby will be eager to red-pencil.

Joe Saas, senior vice president for balance sheet risk at financial services conglomerate FIS, said the proposal’s shift from a standard risk charge to a range of risk levels to be allocated to different assets for rental-backed real estate lending would likely be “circled for push-backs.”