Washington, October 26 (Reuters)Driven by Republican regulatory officials appointed by U.S. President Donald Trump, Wall Street banks are expected to receive significant regulatory relief. However, to ensure that these changes can be sustained in the long term, they may ultimately still require the support of the Democratic Party.
The Federal Reserve is attempting to finalize the largest reform of bank capital regulations since the financial crisis of 2007-2009 by the end of the year. Although Trump has appointed 4 of the 7 members of the Federal Reserve Board, 6 industry executives stated that Wall Street banks hope that Michelle Bowman, the vice chair in charge of supervision appointed by Trump, can also secure support from Democrats for these reforms, as they believe this will make it more difficult to overturn them.
Independent analysts say that this controversial and multi-year rule-making process is coming to an end, and the Democratic Party is expected to win one or both chambers of Congress next month. Democratic lawmakers have stated that they plan to investigate various agencies of the Trump administration as well as companies that have benefited from its policies. Executives say that Wall Street banks are now weighing how to protect the gains they have made in case the Democratic Party gains more power next year or recovers the White House in 2028.
Michael Bright, CEO of the Structured Finance Association, stated: "Results driven by bipartisan consensus are often more capable of withstanding the test of time."
Blythe added, "I think the market expectation is that they are working hard to reach a consensus as a whole." He was referring to the Federal Reserve.
A spokesperson for the Federal Reserve Board declined to comment.
Banks hope for further adjustments, but this may alienate the Democratic Party.
Democrats usually support stricter regulations to prevent costly bank rescues that are paid for by taxpayers; whereas Republicans often believe that overly heavy regulation will restrict lending and hinder economic growth.
Based on this conservative argument, Bowman proposed a rule modification in March of this year, which could result in a reduction of about 4.8% in the capital levels of large banks. This represents a major reversal for the banking industry, as under the plan led by her Democratic predecessor Michael Barr in 2023, banks were originally facing a 20% increase in capital requirements.
The banking industry once opposed Barr's plan and managed to persuade Republican members of Congress as well as dozens of Democrats to put pressure on the Federal Reserve to modify the plan. This struggle dragged the project throughout the Trump administration.
At the beginning of last year, Barr resigned from his position as vice chairman in charge of regulatory affairs, stating that he wished to avoid legal conflicts with Trump; it was reported that Trump was planning to remove him from this position at that time. Barr remains on the Federal Reserve Board and opposes Bowman's proposal, claiming that it will increase systemic risks. Progressive Democrats and advocacy groups have expressed similar concerns, but most other Democrats have not yet made a statement.
