Warren and Brown urge regulators to undo recent capital change

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WASHINGTON — Two Democratic senators are calling on regulators to reverse their recent decision to ease a key capital requirement for banks.

Sens. Sherrod Brown of Ohio, the Senate Banking Committee’s top Democrat, and Elizabeth Warren of Massachusetts said in a letter Friday that a change to the supplementary leverage ratio that was announced in May “is dangerous and puts the economy and hardworking families at risk.”

“There is no justifiable reason to relax a key safety and soundness restraint by arguing that it is necessary for banks to support lending while simultaneously allowing banks to distribute capital to enrich their shareholders,” the senators wrote to Federal Reserve Vice Chairman of Supervision Randal Quarles, Federal Deposit Insurance Corp. Chairman Jelena McWilliams and acting Comptroller of the Currency Brian Brooks.

Sens. Sherrod Brown and Elizabeth Warren said the recent change to the supplementary leverage ratio goes “far beyond providing institutions relief to accommodate the inflow of deposits and increases in reserve balances as a result of the economic response to the coronavirus crisis.”

“We are baffled that the federal financial regulators granted a long-desired piece of deregulation to the nation’s largest banks without sufficient justification to do so, and despite the risks to economic growth and financial stability,” Brown and Warren wrote.

The SLR requires banks with more than $250 billion of assets to maintain an extra cushion of high-quality capital against their total assets. Banks must maintain a minimum 3% ratio against their total leverage exposure, with even tougher requirements for the most complex firms.

In May, the regulators announced an interim rule change to allow banks to exclude U.S. Treasury securities and deposits held at Federal Reserve banks from the SLR calculation until March 2021.

Brown and Warren said the change to the SLR goes “far beyond providing institutions relief to accommodate the inflow of deposits and increases in reserve balances as a result of the economic response to the coronavirus crisis.”

The senators criticized the SLR change because it allows banks to continue to pay billions of dollars in dividends to shareholders and executives.

And they said the change makes the U.S. financial system weaker and could harm the recovery from the COVID-19 pandemic.

The letter comes as Democrats have pushed back against the Trump administration’s regulatory rollbacks in the midst of the pandemic, and have called on regulators to suspend stock buybacks and dividends. Republicans, on the other hand, have called for regulators to ease banks’ regulatory burden to help them provide better service to their customers.

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Capital requirements Federal Reserve OCC FDIC Elizabeth Warren Sherrod Brown Senate Banking Committee Coronavirus
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