Fed Capital Reforms Expose Rift Among Wall Street Giants

Wall Street's powerful banks have been fighting for years to relax capital rules imposed by the Federal Reserve. Now, as the Fed wraps up a sweeping overhaul of capital requirements, an unexpected rift has emerged among JPMorgan, Bank of America, Goldman Sachs, and Morgan Stanley.

The proposed changes would make the capital surcharge more risk-sensitive by revising how it treats short-term wholesale funding, such as repo and commercial paper. This tweak would benefit commercial rivals like Morgan Stanley and Goldman Sachs, which are more reliant on short-term wholesale funding.

JPMorgan and Bank of America executives were surprised by this proposal because it would not help their deposit-funded business models. The two largest US lenders estimate they will miss out on billions of dollars in capital relief due to the funding tweak, while Morgan Stanley and Goldman Sachs stand to gain $1bn to $2bn each.

The divergence has sparked last-minute infighting among the Wall Street giants, potentially complicating the Fed's effort to finalize the reforms before next year when Democrats are expected to have control of the House of Representatives.