This week, 19 members of Congress demanded the Federal Reserve maintain strong capital requirements for Global Systemically Important Banks.
Ranking Member of the House Committee on Financial Services Maxine Waters, D-Calif., and Ranking Member of the House Committee on Financial Services Subcommittee on Terrorism and Illicit Finance Ed Perlmutter, D-Colo., led the charge.
In a letter addressed to Federal Reserve Chairman Jerome Powell, the congressmen call into question Federal Reserve Vice Chair for Supervision Randal Quarles request to weaken capital requirements due to concerns of “unwarranted capital burdens.”
In the letter, Democrats highlighted evidence that indicated that high capital standards and regulatory improvements have strengthened the financial system since the financial crisis.
“Strong capital requirements are the cornerstone of an effective regulatory regime that promotes financial stability while supporting stable economic growth,” the members stated. “The financial crisis a decade ago taught a painful lesson about how damaging an undercapitalized financial system can be – a recent Federal Reserve study estimated the crisis cost every American about $70,000. Thus, we urge the Federal Reserve not to forget that costly lesson and maintain the appropriately tough capital requirements on G-SIBs."
The members revealed that banks are making record profits, averaging $167 billion annually the last three years.
Notably, this was before Congressional Republicans decreased the corporate tax rate for U.S. G-SIBs, providing the largest banks a windfall of more than $15 billion in 2018. Furthermore, billions more expected in the years following, according to the members.
“In fact, the industry made a record $60 billion in profits in just the second quarter of 2018. As banks have increased capital and earned record profits, their lending to businesses has increased by 80 percent since 2010, and the economy has had 101 consecutive months of private sector job growth since 2010. U.S banks are also competing well internationally,” members indicated.
According to the U.S. Bureau of Economic Analysis, real gross domestic product increased at an annual rate of 4.2% in the second quarter of 2018. This is the fastest pace of growth in nearly four years.
Overall, the Congress members said they believe that weakening big bank regulations could prove to be detrimental to the U.S. economy.