Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. Washington regulators have set off a lobbying bonanza with a 1,000-page plan to hike big bank capital requirements. It’s just the beginning. The Federal Reserve, the FDIC and the OCC have a series of rules they plan to roll out in the coming weeks and months as they try to shore up the banking system post-SVB. Here’s what we know based on the most recent intel from regulators. Preparing for the worst A big theme for this wave of regulation is that Washington has left the economy exposed to disastrous regional bank failures and needs to cast a wider net with tougher rules. FDIC Chair Martin Gruenberg has been warning of this “underappreciated risk” for years. Lingering tremors from the failures of SVB, Signature Bank and First Republic have made it an urgent issue. Case in point is a rule expected soon — possibly before Labor Day — that would force more large banks to hold long-term debt that can absorb losses when they collapse. The requirement today applies to a handful of global systemically important banks. You may see regulators try to extend it to all banks with $100 billion or more in assets. In the same vein, look for officials to try to strengthen requirements related to how large banks prepare “living wills.” The so-called resolution plans outline how they can be wound down when they fail. Heading off a cash crunch SVB went down in part because it failed to manage an exodus of depositors in the cash-strapped tech sector. Regulators are planning to respond by revamping two key liquidity rules this year. One, the liquidity coverage ratio, acts as a kind of 30-day cash management safeguard, and was scaled back in the Trump era. The other, the net stable funding ratio, requires banks to consider the funding requirements of their operations over the course of a year. Fed Vice Chair for Supervision Michael Barr has said regulators should consider applying tougher liquidity requirements to more firms. Officials are also reevaluating the stability of bank deposits in general, in particular those that are uninsured. “These recent experiences suggest that depositors’ relationship to their banks is changing and that runs are much faster and more significant,” Treasury assistant secretary Graham Steele said last week. Klaros Group partner Jonah Crane, a former Treasury official, told MM he expects regulators to reconsider how they treat commercial deposits tied to private equity and venture capital firms. “They’re going to have a look at all the banks that experienced deposit outflows and figure out which deposits left and which ones stayed,” he said. Happy Monday — Sam’s back! Help us stay busy during August recess. Send tips: Zach Warmbrodt, Sam Sutton.
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