Fed’s Softened Bank Capital Proposal Faces Pushback from FDIC

A recently softened proposal by the U.S. Federal Reserve, aimed at adjusting bank capital requirements, has encountered opposition from the Federal Deposit Insurance Corporation (FDIC), Bloomberg News reported on Friday. The FDIC, one of the key banking regulators in the U.S., is reportedly split on the proposal, with at least three of its five board members voicing concerns.

This pushback comes after the Federal Reserve scaled back its initial proposal, which originally called for large banks to hold 19% more capital. The move was designed to prevent the kind of financial losses that triggered the collapse of three major banks in 2023. However, after months of lobbying from the banking sector, the Fed lowered the capital requirement to 9% earlier this September, aiming to strike a balance between regulatory oversight and banking flexibility.

Criticism within the FDIC board includes opposition from Vice Chairman Travis Hill and Rohit Chopra, the Democratic director of the Consumer Financial Protection Bureau. Both have expressed concerns over the reduced requirements, indicating that further negotiations may be needed to reach a consensus.

This disagreement highlights the broader regulatory challenges faced by financial watchdogs as they strive to introduce reforms without stifling economic growth. The proposal remains a focal point in the ongoing debate between banking institutions and regulators, as both sides attempt to avoid a repeat of the 2023 banking crisis.

As discussions continue, the financial community watches closely, recognizing that the outcome of this regulatory dispute could have significant long-term impacts on the stability and oversight of the U.S. banking system.

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