US capital hikes and other Wall Street bank rules now hinge on US election

US regulators will not be able to finalise contentious bank capital hikes before the November presidential election, casting doubt over whether those and other stiff draft rules for Wall Street banks will be completed at all, said five people familiar with the matter.

The so-called Basel III Endgame rules would overhaul how banks with more than $100 billion in assets manage their capital, potentially crimping their lending and trading. Banks say extra capital is unnecessary and will hurt the economy, and have aggressively lobbied to kill Basel.

Now, the outcome of that fight will depend on the Nov. 5 election.

The Democratic candidate for president, Vice-President Kamala Harris, has called for strengthening bank rules. But if Republican candidate Donald Trump wins, his administration is widely expected to rip up or dramatically weaken the new rules, the sources said. Trump has pledged to cut red tape. The two candidates are locked in a tight race although Harris is leading in some battleground states. Regulators have been arguing for months over whether to reissue the Basel draft and allow banks to feed back, Reuters reported in June. Industry executives widely expect the agencies will re-propose the rule after Federal Reserve Chair Jerome Powell told Congress last month it was “essential” to do so given there had been major changes. But it remains unclear how the Fed will persuade the other agencies, which want to finalize the rule before the election, to back that plan, the sources said.

Even if the agencies reach an agreement next month at the earliest, they would likely give banks at least 60 days to provide feedback, which is typical for complex rules, the sources said. That would make it almost impossible for officials to absorb the comments and achieve a final draft before a new US administration takes over in January 2025, the sources said.

That previously unreported timeline endangers Basel and two other debt and liquidity rules for big banks which cannot be completed until the Basel draft is in good shape and the staff working on it are freed up, the people said.

Combined, the rules could require banks to hold more than $200 billion in extra capital and debt, based on regulatory estimates, meaning substantial or indefinite delays could be extremely valuable to the industry. Some progressives who favor tougher rules fret that the Basel fight in which banks have spent millions of dollars on public campaigns will ultimately succeed in stymieing the sweeping regulatory overhaul they had hoped for under Democratic leadership, despite last year’s bank failures exposing risks in the system.

“They were overly optimistic about how easy it would be to get Basel III Endgame done. When it turned out that wouldn’t be as easy, that just sucked up all the oxygen,” said University of Michigan professor Jeremy Kress, referring to the agencies.

Spokespeople for the Fed, Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC), which are jointly drafting the rules, declined to comment. Spokespeople for the Harris and Trump campaigns did not respond to requests for comment.

“There are a whole lot of things up in the air,” said Bright.