New York: If Wall Street delivers on its promises, the US Federal Reserve will get reams of feedback on regulators’ proposed bank-capital overhaul.

In comments yesterday, the industry formalised its critiques of a plan that would force the biggest lenders to set aside 19% more in capital, a move aimed at avoiding future bank failures and another financial crisis.

The Fed, Federal Deposit Insurance Corp and Office of the Comptroller of the Currency must take those suggestions into account before completing the rules.

The industry has argued that the plan overstates how much cushion banks would need to cover unexpected hits to business lines such as mortgage lending, operational and trading activities, and fee-based services.

Michael Barr, the Fed’s vice-chair for supervision, is open to considering changes in those specific areas, according to two people familiar with his thinking.

Publicly, Barr has said that he has heard the concerns.

“We welcome all comments that provide the agencies with additional data and perspectives to help ensure the rules accurately reflect risk,” he said in October at the American Bankers Association’s annual convention.

Top financial watchdogs and their supporters have said that banks need to keep strengthening their capital positions given lessons learned from the devastation caused by the 2008 financial crisis.

“Stronger capital standards are critically necessary to protect people from financial crises that harm individuals, households and communities across the country,” Americans for Financial Reform, a Washington-based coalition of consumer and investor advocates, wrote in a comment letter it planned to submit.

Banks are spending “vast lobbying dollars to cloak themselves in the mantle of preserving access to credit,” the group said.

“But the truth that the banks avoid debating is that the overwhelming impact of higher bank capital is - by design - to restrict how risky and how big the more speculative aspects of their business, notably their trading and investment bank operations, can grow.”

The industry has indeed waged a fierce lobbying and public-relations campaign against the capital proposal. Banks have argued that the plan will make them less competitive - and home and business loans less affordable. Pushback has also come from congressional Republicans, a few Democrats and even within the Fed.

The proposed package, which may be wrapped up by midyear, is a hefty one at almost 1,100 pages.

Comments from banks, trade groups, academics and others are expected to more than match that page count.

Under the regulators’ rulemaking process, officials must review the comments, make any necessary tweaks and vote again to finalise the plan. Although there isn’t a strict timeline, the looming 2024 elections - and the possibility that a Republican wins the White House - add pressure on Barr and others to move quickly.

There’s also a legal threat.

In a comment letter submitted last Friday, the Bank Policy Institute, Financial Services Forum, Securities Industry and Financial Markets Association, and the US Chamber of Commerce claimed that the regulators’ proposal violated the Administrative Procedure Act, which governs the process in developing regulations.

Among their arguments are that the agencies didn’t undertake a policymaking process that was “deliberate, transparent and based on all available data” and failed to consider alternative solutions.

The groups said the regulators should re-propose the rule.

The Bank Policy Institute has hired Eugene Scalia, who served as labour secretary during the Trump administration and is now a partner at the law firm Gibson Dunn, to craft a legal strategy, a spokesman for the trade group said.

Isaac Boltansky, a Washington-based bank analyst and policy research director at financial services firm BTIG, said he believes the capital proposal is ripe for changes.

“Any debate is over how much,” he said.

 - Bloomberg