The Federal Reserve is pushing Wall Street to support new capital regulations, but large banks are still seeking more exemptions.

Bank of America Corp's capital regulatory reform has entered a crucial stage. Despite clear signals of support for new regulations and reducing public pressure from top officials of the Federal Reserve, large banks continue to push for further relaxation of capital requirements. According to sources familiar with the matter, Randal Quarles, Vice Chairman of Supervision at the Federal Reserve, met in early April with CEOs of large banks including JPMorgan Chase and Goldman Sachs Group, Inc., urging the industry to consider the impact of the new capital proposals from a holistic perspective rather than seeking additional exemptions. The proposals are generally seen as favorable to the banking industry and are expected to reduce overall capital requirements. Sources said some bank executives felt that the Federal Reserve wants the industry to focus more on "constructive feedback" in the feedback period that ends in mid-June, rather than engage in intense lobbying as the capital proposals are not expected to undergo major revisions. Over the past year, U.S. regulatory agencies have been consistently pushing for relaxation of banking regulatory frameworks in response to long-standing criticisms from Wall Street about complex and burdensome regulations. One comprehensive proposal led by Quarles and announced in March includes lowering capital requirements for systemically important U.S. banks and adjusting capital rules related to the Basel Committee on Banking Supervision. The Federal Reserve stated that after these measures are implemented together, some bank capital requirements will "moderately decrease." This shift contrasts sharply with 2023, when the banking industry united in opposition to the significant increase in capital requirements proposed under the "Basel III Final Reform Package" and ultimately prevented its implementation. However, even though the regulatory direction has clearly leaned towards looser standards, large banks still hope to secure more concessions. Jamie Dimon, CEO of JPMorgan Chase, recently criticized the plans for needlessly tying up capital, while Citi CEO Fraser stated that while the proposals are an improvement, they still fall short of what is needed. JPMorgan Chase emphasized during its latest earnings call that despite the overall decrease in industry capital requirements, the bank itself may still need to retain an additional $20 billion in capital. The controversy over stress testing rules continues. Previously, the Bank Policy Institute and the Bank of America Corp Association publicly criticized the stress test assumptions as "overly severe and detached from reality." While the Federal Reserve has proposed adjustments to the annual stress testing mechanism to allow banks to know the testing standards in advance, critics view this as turning the tests into an "open-book exam." Analysts believe that there is not a united front on Wall Street. Due to differences in business structures among major banks, many institutions prefer to push for customized reforms that benefit their own balance sheets rather than maintaining a unified front to seek industry-wide relief. Former Federal Reserve banking policy lawyer Jeremy Kress stated that this creates a "prisoner's dilemma," where banks may unite to seek broader reductions in capital requirements but may also delay or hinder the final rule due to special requests. Ian Katz, Managing Director at Washington research firm Capital Alpha, pointed out that there are also disagreements within regulatory authorities. Some officials believe that banks have already been granted enough concessions, and if the rules continue to be tweaked, banks' demands may become never-ending. As a regulator seen as favoring the banking industry, Quarles is currently trying to strike a balance between the industry, the public, regulatory agencies, and international regulatory bodies. As adjustments to U.S. capital rules affect global regulatory standard coordination, international regulatory bodies are also watching the final U.S. proposal. Quarles has stated that he hopes to complete capital reform by the end of the year to create space for addressing other potential financial risks.