The biggest US banks would face a 9% increase in capital requirements - a dramatic retreat from the original plan - after regulators agreed to sweeping changes to a proposed package of rules, according to people familiar with the matter. 

The original plan by the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency had called for a 19% jump in the capital that the eight US global systemically important banks, including Bank of America Corp. and JPMorgan Chase & Co., must hold as a cushion against unexpected losses and financial shocks.

Sharp reductions to the capital mandates are more likely to appease banks, which unleashed one of their fiercest lobbying campaigns after the proposal’s introduction last year. The drafted revisions could also help Fed Chair Jerome Powell meet his goal of drawing broad support from the central bank’s board. Powell has made it clear to banks that he also wants to avoid a lengthy legal battle.

A representative for the Fed declined to comment.

Fed Vice Chair for Supervision Michael Barr plans to preview the changes in a speech Tuesday. The three regulators are expected to release up to 450 pages of revisions as soon as Sept. 19, Bloomberg reported last week. 

The capital overhaul first announced in July 2023 is tied to Basel III, an international accord that started more than a decade ago in response to the global financial crisis of 2008. 

The Fed later floated a dramatically weaker version of the plan to other regulators, alarming some agency officials. That weaker version had suggested an overall capital increase as low as 5% for a broad group of US banks, down from roughly 16% in the original proposal.

The plan to be outlined on Tuesday will likely be subject to a 60-day comment period, and final adoption might not take place until “well into next year,” Powell has said. 

Banks will almost certainly request an extension to the 60-day timeline, said Jeremy Kress, a former Fed bank-policy attorney who now teaches business law at the University of Michigan. But that’s only one risk.

“Even if the agencies were to finalize a rule before Inauguration Day, a Trump win could jeopardize its implementation,” Kress said. “A Republican-controlled Congress could overturn the rule through a Congressional Review Act resolution, or the banking agencies could delay the compliance date and eventually repeal the rule.”

There’s no guarantee that individual banks will be satisfied by the smaller overall capital hikes, as industry members have cited a wide range of concerns from how trading risks are treated to how the proposals interact with annual stress tests. But firms may be reticent to mount a legal challenge on their own. 

“It is highly unlikely that a solo bank would step out on its own against the pack,” said Mayra Rodriguez Valladares, a financial risk and bank consultant who previously worked at the New York Fed. “That may likely prove unhelpful for that lender.” 

  - Bloomberg