Four of the biggest US financial institutions want big changes to proposed new rules on how much capital US banks must hold.
Representatives from Citigroup, JPMorgan Chase, Wachovia and Washington Mutual met representatives from the Federal Reserve on Wednesday to ask that they be allowed to adopt a simplified version of the new regulations, known as Basel II.
It comes amid growing unease among large US banks about the new rules, which are designed to improve the allocation of capital in the economy by more accurately measuring financial risks.
The introduction of Basel II should let some big banks reduce their regulatory capital by adopting an advanced approach that requires them to build sophisticated risk management systems.
But draft rules drawn up by US banking regulators, under pressure from politicians and lobbying by smaller lenders, limit the potential benefits for banks adopting the advanced approach.
This has prompted some to question the point of the exercise, and to propose switching to a simpler version of the rules, first designed for smaller banks.
On Thursday the American Bankers’ Association joined those seeking change. In a letter to regulators the industry group said many banks “view Basel II as evolving into a compliance exercise that may yield little, if any, opportunity for banks to realise the benefits from a risk-efficient employment of capital”.
Any attempt to tinker with the introduction of Basel II in the US could create protests from regulators and banks elsewhere. US regulators have already attracted criticism from abroad by only applying Basel II to the largest banks, and by delaying its implementation for a year.
The four banks have presented their proposal, originally set out in June, as a compromise. But US officials are sceptical as to whether the big banks really do want to abandon the advanced approach, seeing their letter as a salvo in ongoing negotiations on the implementation of Basel II.
The extent to which the rules are revised will depend on talks between regulators and on pressure from Congress and the different sections of the industry.
The Fed backs the view that rules should not be too restrictive, whilst the Federal Deposit Insurance Corporation is seen as hostile to too much flexibility.