Wall Street's dominant banks, including JPMorgan, Bank of America, Goldman Sachs, and Morgan Stanley, are engaged in a dispute over proposed revisions to capital rules by the Federal Reserve. This comes after years of a unified front among these banks to ease capital requirements. The disagreement centers on a tweak to the capital surcharge imposed on global systemically important U.S. banks (GSIBs), particularly how it treats short-term wholesale funding such as repo and commercial paper.
JPMorgan and Bank of America, which rely heavily on deposit funding, are surprised and displeased by the proposed changes. They argue that the revisions would primarily benefit Morgan Stanley and Goldman Sachs, which are more dependent on short-term wholesale funding. According to 2026 federal data, short-term wholesale funding accounted for 37% of Morgan Stanley's liabilities and 30% for Goldman Sachs, compared to 24% for Bank of America and 21% for JPMorgan.
JPMorgan estimates it would miss out on $13 billion in additional capital relief, and Bank of America would lose out on $9 billion. In contrast, Goldman Sachs and Morgan Stanley are projected to gain an extra $1 billion to $2 billion each in relief. This disparity has led to intense lobbying efforts, with JPMorgan and Bank of America urging the Fed to reconsider the change, arguing it could restrict their lending and potentially harm the economy, while boosting riskier trading activities. Morgan Stanley, on the other hand, has actively pushed for the change, asserting it would enhance liquidity in the Treasury market.
This internecine conflict among the major banks could complicate the Fed's efforts to finalize the reforms, especially with potential shifts in political control of the House of Representatives in the coming year, which could lead to increased oversight of regulatory actions.
