Three of the biggest regional banks in the US banks claimed easier capital rules, were able to persuade regulators to relax capital requirements in 2019 by deducting fictitious losses on their investment portfolios. They argued that by doing this, they would be able to manage interest rate risk better while increasing lending and boosting the American economy.
A Financial Times research reveals lending at the three banks — PNC, US Bank, and Capital One — as well as lenders they have since purchased, in fact, expanded more slowly than at competitors, as authorities ponder rolling back those improvements in the wake of Silicon Valley Bank’s failure.
Loans Issues of Trios
Less than half of the 15% increase experienced by the entire industry, loans issued by the trio of banks increased by just 6% over the three-year period from 2019 to 2022. Over the same time period, JPMorgan Chase, which was subject to the guidelines, increased lending by 18%. Unrealized losses at the three banks, however, surged by around 1,400% to $40 billion during the same time period after the Federal Reserve sharply raised interest rates.
“These banks would have said anything to get the rules passed,” claimed Scott Siefers, a bank analyst at Piper Sandler who studies US Bank and several other significant lenders.
Regional US banks claimed easier capital rules
Financial Health
The 2019 move that permitted sizable regional lenders to completely eliminate any market losses in their bond portfolios from their capital calculations is being reconsidered by the Fed. Critics point to the fact that SVB’s failure was partially caused by these losses as evidence that the regulatory respite allowed them to artificially boost a crucial indicator of financial health.
Lenders are fighting back, arguing that changing the regulation may make the current banking upheaval worse. They also claim that doing so might restrict their ability to issue loans, echoing their 2019 pleas.
