[Reuters Breakingviews] US banks set to capitalize on rare globalist pact

NEW YORK, March 13 (Reuters Breakingviews) - The new top cop at the U.S. Federal Reserve hardly fits the presidential mold. Michelle Bowman, Donald Trump’s pick to be the central bank’s vice chair of supervision, has indicated that she believes in aligning federal rules with Europe and the rest of the world. If so, it would mean largely conforming to Basel 3, the sort of international accord the White House is trashing most everywhere else.

Bowman should be a welcome choice to the eight systemically important U.S. banks, which include Bank of America BAC.N and Goldman Sachs GS.N. JPMorgan JPM.N boss Jamie Dimon led the charge against her predecessor, Michael Barr, who initially proposed under the Swiss-based stability plan that the biggest domestic lenders top up their regulatory capital by another 18%. He eventually backed down and made it 9% while also easing other suggested restrictions.

The clash has held up adoption of the worldwide regulatory framework developed by the Basel Committee on Banking Supervision. European authorities, in particular, have feared that their U.S. counterparts might scrap the entire plan, ending years of painstaking coordination.

During his presidential campaign, Trump promised to “strike down” the Basel accords. Fed Chair Jay Powell intensified concerns when he told Congress last month that it wasn’t clear whether a bank supervision chief, a position created by the 2010 Dodd-Frank Wall Street reforms, was even necessary. He said regulation would be “less volatile” without one.

U.S. regulators have been imposing tougher requirements in part because its banks, at least theoretically, have less of an implicit government backstop than their international peers. Extra capital cushions, however, have not prevented JPMorgan and others from increasing their market share in many businesses. It isn’t hard, though, to see an “America First” president giving U.S. banks an even bigger competitive edge.

Bowman, a member of the Fed’s board of governors, offers a break from post-financial-crisis regulatory convention. She is likely to get rid of Barr’s 9% supplement, which on paper would force the eight titans to add a combined $90 billion to their $1 trillion of common equity Tier 1 capital, although many already hold more than the required minimum.

Her biggest criticism of Barr’s approach was its lack of consistency with the broad international consensus. Bowman has said that uneven rules can artificially drive financial activity to places with the laxest ones, thus making the banking system more, not less, unstable. It is a decidedly globalist position that would connect the United States with the rest of the world in an otherwise fracturing environment.

CONTEXT NEWS

Michelle Bowman, a former community banker and a member of the U.S. Federal Reserve board of governors, will be nominated to be the central bank’s next vice chair of banking supervision, the White House said on March 12, confirming earlier media reports.

Bowman, if confirmed, would follow Michael Barr, who was appointed by President Joe Biden and resigned from the role on January 6.

Big US banks hold nearly $1 trln of regulatory capital