Wall Street Giants Clash Over Capital Rules Tweak

Wall Street's top banks are feuding over a tweak to capital rules proposed by the Federal Reserve. The change, which aims to make the surcharge more risk-sensitive, would benefit commercial rivals like Goldman Sachs and Morgan Stanley, which rely heavily on short-term wholesale funding.

JPMorgan and Bank of America, however, argue that this outcome is at odds with the key reason regulators have argued for capital relief, to boost lending to the real economy. They claim that the new formula could crimp their lending and potentially hurt the economy, while boosting riskier trading activity.

The banks' executives have been lobbying Fed officials, sometimes in joint meetings, to spike the proposed change. The people said it was unclear who will win out. Fed Vice Chair for Supervision Michelle Bowman has told banks to limit feedback, and three of the people said they believe she will stick closely to the current draft.

The Federal Reserve developed the GSIB surcharge following the 2007-2009 financial crisis. It initially comprised five systemic risk factors of 20% weights, including short-term wholesale funding. Together, GSIBs pushed for years to revise the rule, arguing it was too stringent and inadequately measured risk.