Wednesday, December 6, 2017

Big Bank Regulatory Reform Progress

Article is nominally about a Democrat drafting error but that is not important. Senate this week discussing regulatory adjustment for bank capital requirements against non-risk assets:
Wall Street bankers have complained about the supplemental leverage ratio for years, and changes to the rule are high on big lenders’ wish list as the financial reform bill works its way through Congress. 
The rule requires big banks that are subject to the U.S. Federal Reserve’s annual stress test to hold additional capital to reflect risks they pose to the broader system. 
Van Hollen’s abandoned amendment would have changed a part of the rule that requires lenders to hold capital against certain assets held at central banks. 
The bill being drafted by the Senate Banking Committee was proposed by Republican Senate Banking Committee Chairman Mike Crapo and is due to be formally discussed by lawmakers this week.

Banks currently possessing over $5T of non-risk assets including $2.5T of reserves; getting this regulatory mod would be like reversing the entire QE+ in one day as related to bank capital requirements.  Probably freeing up about $400B in bank capital they have had to build up over the QE fomented Great Recession period of the last 8 years.

Its going to happen either way the question is via what time domain characteristic.  Either they get this reform which the effect would be immediate or the Fed will continue to remove reserve assets slowly at the current rate of 10's of $B per month; bullish either way.

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