Is Federal Reserve Chair Jerome Powell ready to take on the big banks? There’s a chance we’ll find out this week. Powell is set to appear before the Senate Banking and House Financial Services Committees Tuesday and Wednesday. He’s there to talk monetary policy, but he’s unlikely to offer many surprises on that front. These hearings are a prime opportunity to get Powell on the record about myriad other topics. Bank lobbyists have been discreetly laying the Capitol Hill groundwork to nudge Powell on their top concern this year — fending off what could be a significant hike in their capital requirements. Big bank leaders were in Washington making the case as recently as last week. The rules at issue determine how much funding lenders must have available to absorb losses. There is no regulatory or legislative issue that big banks and their trade groups are spending more time on this year, and they are in some ways flying blind. The Fed’s point man on regulation — Vice Chair for Supervision Michael Barr — has signaled that the capital buffers that big banks have for bad times are insufficient. He has undertaken a “holistic review” of capital rules. While there’s been little transparency into his process, and there’s no guarantee he’ll even release his findings, bank representatives are convinced he’s building the groundwork for stricter regulations. They believe that the FDIC will also support a hike in capital requirements. A capital proposal from the agencies is expected by the summer. The positions of Powell and other Fed officials are less clear. Big bank executives and their lobbyists have made the case directly to top lawmakers — including those who will grill Powell this week — that forcing banks to tap more funding to weather headwinds would slow the economy by raising their costs and restricting the services they can offer. Watchdogs like Better Markets argue that capital standards should be raised to protect the economy from bank failures and taxpayer-funded bailouts. It’s clear the bank lobby has made headway, so expect Powell to get questions about this. That may prompt him to justify — or not — the need for imposing new regulations on banks when the U.S. economy is struggling with inflation and a potential recession. On Friday, Sen. Tim Scott (R-S.C.) — the top Republican on the Senate Banking Committee and a potential presidential candidate — wrote a letter to Powell with nine other Republicans. They put Powell on notice that, in their view, Barr’s assessment of insufficient bank capital is “unfounded” and that the Fed must avoid violating a 2018 law that eased bank regulations. “[I]t is incumbent on you to oversee any such review,” the senators said in their warning letter, “to ensure that the Federal Reserve’s work is consistent with the law, the risks, and the commonsense principles that support tailored capital requirements and the continued availability of a broad swath of financial services for everyday Americans.” Happy Monday — It’s another busy week. We don’t want to miss anything, so please send tips to zwarmbrodt@politico.com and ssutton@politico.com.
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