Powell should heed Warren's warning against weakening banking regulations: 'Do your job'

• Jerome Powell, the Fed Chair, is being accused by Sen. Elizabeth Warren of prioritizing the interests of the financial industry in his consideration of modifications to Basel III Endgame regulations.
• In a letter obtained by CNBC, Warren requested a response from Powell regarding reports that he was advocating for reducing the increase in capital under the proposals by half.
• The banking industry is lobbying against the increases, claiming they are too aggressive and will limit lending.

Jerome Powell, the Fed Chair, is being accused by Sen. Elizabeth Warren of prioritizing the interests of the financial industry by considering modifications to regulations intended to increase the capital reserves of large American banks.

In a June 17 letter, Warren requested a response from Powell regarding reports that he was advocating for reducing the increase in capital under the Basel III Endgame proposals by half.

Warren, D-Mass., expressed disappointment over press reports suggesting that he had personally intervened to delay and weaken the Basel III capital rules after multiple meetings with big bank CEOs.

In 2020, three US banking regulators, including the Federal Reserve, announced proposed rules that represent a significant shift in bank capital and risky activities such as trading and lending. These regulations incorporate new international standards developed in response to the 2008 global financial crisis.

Warren stated that these rules are crucial and long overdue, especially considering the Silicon Valley and Signature Bank failures, as well as the risks from the weak commercial real estate market and other economic threats that are spreading throughout the banking system.

The banking industry is lobbying against the increases, claiming they are too aggressive and will limit lending.

In March, Powell informed lawmakers that he anticipated "significant modifications" to the proposal due to the industry's opposition to the rules. According to the Wall Street Journal, CEO Dimon led efforts to weaken the rules, urging CEOs to directly contact Powell.

"Warren accused the bank industry of influencing her decisions, which she claimed would put the financial security of middle-class and working families at risk in order to benefit wealthy investors and CEOs."

Powell was criticized further by her, who claimed that the "regulatory rollbacks" under his leadership led to the 2023 regional banking crisis and benefited Jamie Dimon and his Wall Street associates.

Warren urged Powell to vote on the Basel proposal by the end of this month, as the deadline to finalize and approve the rules before the U.S. elections in November is fast approaching. Analysts have warned that the proposal could be delayed or killed if Donald Trump is re-elected president.

Warren advised against following Mr. Dimon's orders and instead urged doing one's job and allowing the Board to vote on a 16% capital increase by June 30th, as determined by global regulators to prevent another financial crisis.

The Fed did not promptly respond to a request for comment on Warren's letter.