Two Senate Democrats sharply criticized the Federal Reserve’s effort to get Congress to help it weaken capital requirements for big banks this week, following a report in The New York Times that Republicans were hoping to include such a provision in the next coronavirus relief package.
In letters to Federal Reserve Chair Jerome H. Powell and Vice Chair Randal K. Quarles, Senators Sherrod Brown of Ohio and Elizabeth Warren of Massachusetts, who sit on a committee that oversees banks and regulators, said the move would make the financial system less safe and help enrich bank chief executives without encouraging their institutions to lend more to Americans hit hard by the coronavirus pandemic.
Banks and Fed officials have said the change is needed to let banks handle the heavy influx of customer deposits owing to the crisis.
At issue is a provision in the Dodd-Frank Act, the 2010 law designed to strengthen bank regulations following the 2008 financial crisis. It prohibits regulators from lowering capital requirements beyond the level at which they were set when the law was passed 10 years ago. Mr. Quarles, who is vice chair for bank supervision and regulation, is now asking Congress to essentially release it from that prohibition.
“Congress wrote this provision to ensure that, even under lax banking regulators, banks could absorb losses in the event of a downturn,” the senators wrote to Mr. Quarles in a letter on Thursday. “Republican legislation now being crafted reportedly contains a broad deregulatory measure that will accomplish the giant giveaway that banks have long sought.”
In a separate letter to Mr. Powell,