*

Banks aim to reshape U.S. capital rules under Trump

administration

*

Executives seek weaker Basel Endgame and reduced capital

surcharge

*

Goldman Sachs ( GS ) CEO expects new approach to capital rules

By Pete Schroeder

WASHINGTON, Jan 17 (Reuters) - Emboldened by a

friendlier incoming Trump administration and their success last

year in weakening draft capital hikes, big U.S. banks plan to

push to overhaul other U.S. capital rules, according to industry

executives.

Among the industry's goals are to lock in a much weaker version

of the "Basel Endgame" capital rule, reduce a capital surcharge

levied on global banks, re-work a key leverage constraint, and

overhaul the Federal Reserve's annual "stress tests" which

assess whether a bank could withstand an economic shock, said

three executives with knowledge of the ambitious lobbying plan.

Under President-elect Donald Trump's first term, global U.S.

banks scored some de-regulatory wins, including loosening

trading rules and simplifying the stress tests, but they did not

win a hoped-for comprehensive review of big bank capital rules

implemented following the 2007-2009 global financial crisis.

Those rules aim to prevent another crisis by requiring the

biggest U.S. banks such as JPMorgan Chase ( JPM ), Bank of

America ( BAC ) and Goldman Sachs ( GS ) to sock away nearly $1

trillion combined to absorb potential losses on loans and

trading. Banks say the requirements are excessive and poorly

calibrated, and some of that cash could better serve the economy

by being lent out.

The industry tasted partial victory last year after intense

lobbying succeeded in halving the additional capital banks would

have to hold under the Basel proposal, and prompted the Fed to

review its stress test process.

Buoyed by those wins, and with Trump due to appoint new

industry-friendly officials - including a new Federal Reserve

regulatory chief nearly 18 months earlier than expected - banks

see a unique opportunity to reshape capital rules, the people

said. All three requested anonymity to discuss ongoing

regulatory matters.

Speaking during earnings on Wednesday, David Solomon, CEO of

Goldman Sachs ( GS ) - which lobbied hard to water down Basel - said he

expected the change in administration would lead to a new

approach to capital rules.

"It feels like we're in an environment where there could be a

constructive discussion about improving the transparency,

clarity and consistency around this," he said.

After years of criticism for the financial crisis, large banks

feel they are done apologizing, executives say. They point to

how big banks weathered the COVID-19 pandemic and their role in

stabilizing regional banks during turmoil in 2023 as proof they

are rock solid and do not have to tolerate more onerous rules.

"All we want is a coherent, rational, holistically assessed

regulatory framework that allows a bank to do their job

supporting the economy that isn't reflexively anti-bank,"

JPMorgan's ( JPM ) CFO Jeremy Barnum said during earnings on Wednesday.

"The hope is that we get some of that."

Adding to the industry's confidence is a judiciary more

skeptical of overzealous regulators - in particular a June

Supreme Court ruling overturning a 1984 precedent that had

called for courts to defer to agency interpretations of

ambiguous laws. The Fed cited that evolving legal landscape when

announcing its stress test review.

"The pendulum swings back and forth in terms of who has more

power," said Ed Mills, Washington policy analyst at Raymond

James. "That pendulum has now swung back to the banks. This is a

shift that is about 15 years in the making."

Spokespeople for Bank of America ( BAC ), Goldman Sachs ( GS ), and

JPMorgan ( JPM ) did not provide comment.

In an interview with Reuters, acting Comptroller of the

Currency Michael Hsu, a top bank regulator, said it was

reasonable to question how capital is allocated, but that the

overall amount in the system "is about right."

"On a case-by-case...you turn all the dials down, and then

you zoom out and you say 'uh-oh we've ended up with a much

weaker system'," Hsu warned.

"PRAGMATIC" OVERSIGHT

The industry has for months been laying the groundwork with

Republican regulators who are poised to replace Biden's agency

heads, and will continue to rally support from Republican

lawmakers who narrowly control Congress, the people said.

Banks are currently lobbying to advance a weaker draft of Basel,

which overhauls how they gauge risk. The Fed's regulatory chief

Michael Barr said last year a revised draft would hike capital

around 9% compared with 19% originally, but lenders hope to push

that figure closer to zero, sources said.

Banks broadly agree it is better to lock in a weaker rule

under Trump than have regulators shelve the project and risk a

future Democratic administration reprising a tougher version,

the people said. Speaking at a conference last month, Bank of

America ( BAC ) CEO Brian Moynihan said regulators should finalize Basel

with little impact rather than "leave it open."

Barr also last year proposed changes to a capital surcharge for

U.S. globally systemically important banks, or GSIBs, which

would reduce the $230 billion it forces those lenders to set

aside. But the banks still want several other tweaks that would

further reduce the burden, the people said.

They also want adjustments to the Fed's "supplementary leverage

ratio", which directs banks to hold capital against investments

regardless of their risk, by exempting super-safe assets like

Treasuries or certain deposits from its calculation.

That leverage ratio and the GSIB surcharge have been on banks'

hit list for years, as have the Fed's stress tests. A day after

the Fed said it would review those tests, lenders sued the

central bank to increase the tests' transparency, although they

have said they hope to resolve the issue outside court.

So far, the signs look positive for lenders. Republican Fed

governor Michelle Bowman, a top contender to replace Barr, has

criticized his work and called for "pragmatic" oversight.

Travis Hill, who will become acting Federal Deposit

Insurance Corporation chair next week and is a top candidate for

the role permanently, said last week that the Basel overhaul

should be expanded to include other capital issues.

Spokespeople for the Fed and Federal Deposit Insurance

Corporation declined to comment.