Wall St banks turn on each other as capital fight nears endgame

• JPMorgan estimates the proposed short-term wholesale funding tweak would cost it $13 billion in capital relief and BofA $9 billion, while Goldman and Morgan Stanley would each gain $1-2 billion in additional relief
• The dispute centers on how the Fed measures short-term wholesale funding in its GSIB surcharge calculation, with Morgan Stanley and Goldman more reliant on such funding (37% and 30% of liabilities) compared to JPMorgan and BofA (21% and 24%)
• JPMorgan and BofA are lobbying the Fed to reverse the change, arguing it would incentivize trading over lending, while Goldman and Morgan Stanley push for quick finalization, claiming it improves risk sensitivity

Wall Street Banks Clash Over Fed Capital Rule Changes

Major U.S. banks are divided over proposed Federal Reserve changes to capital surcharge rules for global systemically important banks (GSIBs), fracturing their previously united front on regulatory relief.

Key Issue

The dispute centers on how the Fed calculates capital surcharges related to short-term wholesale funding (repo and commercial paper). The proposed change would measure absolute funding exposure rather than a ratio of risk-weighted assets, shifting billions in capital relief between competing banks.

Winners and Losers

JPMorgan Chase and Bank of America oppose the change, estimating they would lose $13 billion and $9 billion respectively in potential capital relief. These deposit-heavy banks have been lobbying Fed officials to reverse the provision.

Goldman Sachs and Morgan Stanley support the change, each standing to gain $1-2 billion in additional relief. Short-term wholesale funding represents 30-37% of their liabilities versus 21-24% for JPMorgan and BofA.

Market Context

The funding split reflects different business models: JPMorgan and BofA rely more on retail deposits, while Goldman and Morgan Stanley depend heavily on wholesale funding markets. JPMorgan argues the change would "incentivize trading activity over lending to small businesses."

Regulatory Timeline

Fed Vice Chair Michelle Bowman reportedly wants to finalize the rule by year-end, before Democrats potentially take House control in 2025. Both sides have met with Fed officials at least four times since March when the proposal was introduced.

The infighting complicates broader capital rule reforms that all banks generally support, potentially delaying the Fed's regulatory overhaul. Better Markets analysis confirms Goldman and Morgan Stanley would benefit most from the proposed changes.