US Fed officials spar over banking reform before rare public meeting

US Fed

Members of the US Federal Reserve's governing body have voiced their disagreements over proposed changes to banking rules, ahead of a rare public meeting of the board on Thursday.

The proposals put forward by Michael Barr, the Fed's vice-chair for supervision, call for increased capital requirements for large and mid-sized banks, and changes to how they measure risk.

While the measures have been under consideration for a while, they were given added emphasis by the banking crisis in March fueled by the sudden collapse of regional lender Silicon Valley Bank (SVB) after it took on excessive interest-rate risk.

"The goal of our actions today is simple: to increase the strength and resilience of the banking system by better aligning capital requirements with risk," Barr said in statement ahead of the 1:00 pm (1700 GMT) meeting.

But two Fed governors, Michelle Bowman and Christopher Waller, took the unusual step of publicly disagreeing with the proposals, putting on the record their strong opposition to some of the steps -- especially the proposal to raise capital requirements on average by 16 percent.

Bowman said in a statement she was concerned the proposal "will add to the challenges facing the US banking system, and impose real costs on banks, their customers, and the economy without commensurate benefits to safety and soundness or financial stability."

"I don't think those costs are worth bearing without clear benefits to the resiliency of the financial system," Waller wrote in response to the proposals.

Fed chair Jerome Powell indicated he was in favor of hearing from the public during the longer-than-usual 120-day review period.

"Congress and the American people rightly expect us to achieve an effective and efficient regulatory regime that keeps our financial system strong and protects our economy, while imposing no more burden than is necessary," he said in a statement.

"I look forward to hearing from all stakeholders on how best to strike that balance."