Wall Street Banks Clash Over Capital Rules That Could Yield Billions

Wall Street's biggest banks are at odds over proposed changes to capital rules that could give some lenders billions of dollars in relief. The Federal Reserve is finalizing a sweeping overhaul of capital requirements, but JPMorgan and Bank of America are pushing back against a tweak that would benefit commercial rivals Goldman Sachs and Morgan Stanley.

The capital surcharge, which applies to global systemically important U.S. banks (GSIBs), was proposed by the Fed in March. The change would revise how short-term wholesale funding is treated, with regulators saying it's prone to drying up during market stress. JPMorgan and BofA executives were surprised by this proposal, as it would benefit Goldman and Morgan Stanley more.

JPMorgan estimated that it would miss out on $13 billion in extra capital relief due to the funding tweak, while BofA would miss out on $9 billion. In contrast, Goldman and Morgan Stanley would both realize an additional $1 billion to $2 billion in relief, according to JPMorgan's June letter to the Fed.

The feud between the banks has complicated the Fed's effort to finalize the reforms before next year when Democrats are expected to have control of the House of Representatives. Officials at the Fed are being lobbied by executives from JPMorgan and BofA, who argue that the new formula could crimp their lending and potentially hurt the economy.