U.S. bank regulators just handed Wall Street a $400 billion gift, and if you think this doesn't affect you, think again.
The new rules - announced March 19th but only now getting attention - reduce capital requirements for the biggest banks by 4.8%. In English: banks can now hold less money in reserve as a cushion against losses, freeing up billions for stock buybacks and dividends.
The official story: Regulators say the old rules were too strict, that American banks were at a competitive disadvantage, and that a 4.8% reduction still leaves them plenty safe.
The actual story: Wall Street spent years lobbying for this. And they got exactly what they wanted.
Here's why you should care even if you're not a JPMorgan shareholder: Capital requirements exist to protect depositors. When banks hold more capital, they can absorb more losses before your deposits are at risk. When they hold less, well, remember March 2023?
Silicon Valley Bank collapsed because it didn't have enough capital to cover losses when interest rates spiked. The FDIC had to step in. Your tax dollars backstopped those deposits.
Now regulators are saying: actually, banks can hold less capital than we previously thought was safe. This, while we're potentially heading into an oil shock recession.
The timing is suspicious. When times are good and banks are profitable, they lobby to reduce capital requirements. When times are bad and banks are failing, they ask for bailouts. It's heads they win, tails you lose.
The new rules are particularly generous to banks with big trading operations - exactly the kind of risky activity that blew up in 2008. If you're wondering whether regulators learned anything from the financial crisis, this should answer your question.
What about deposit insurance? Yes, the FDIC insures deposits up to $250,000. But that insurance is only as good as the FDIC's ability to cover failures. And if multiple big banks go down at once - which is exactly when you'd want strong capital requirements - the FDIC's fund isn't infinite.
The counterargument from regulators is that even with the 4.8% reduction, U.S. banks still hold more capital than required by international standards. Technically true. Also a pretty low bar given that international standards were negotiated by, you guessed it, bank lobbyists.
