(NewsNation) — Big banks in America are gearing up for a potential legal fight against the Federal Reserve if a set of proposed regulations aren’t watered down.
The Bank Policy Institute, which represents the largest banks in the U.S., has hired Eugene Scalia, the son of a former Supreme Court justice, to draw up a lawsuit aimed at blocking the proposed rules, Semafor and the American Banker reported.
The banks are targeting the Basel Endgame, a sweeping proposal for stricter bank capital requirements that was unveiled in July 2023. The rules would require them to hold additional capital on their balance sheets in a move designed to help banks better withstand risks to their businesses that go beyond a recession or financial crisis.
The proposal roughly means that Wall Street collectively will have to set aside tens of billions of dollars to meet the Fed’s new rules. Banks that rely more on fee income will see a greater impact than those holding bonds and other securities.
In December, CEOs of the biggest banks warned the regulations could harm the economy. JPMorgan’s Jamie Dimon, Bank of America’s Brian Moynihan, Jane Fraser of Citigroup and Goldman Sachs’ David Solomon testified to the Senate Banking Committee the regulations would curtail lending and weaken balance sheets.
The rules were a product of the Basel Committee on Banking Supervision, a panel convened by the Bank for International Settlements in Basel, Switzerland.
“As a matter of legal process, it’s not going to be enough to say that a bunch of regulators got together in Switzerland, and this rule is what they brought down from the mountain,” Scalia said to Semafor.
The attorney, whose father Antonin Scalia sat on the Supreme Court for nearly 30 years before his death in 2016, told the news outlet that regulators need to justify the rules and explain why the benefits outweigh the costs.
“This proposal doesn’t do that,” he said.
Scalia has experience fighting banking regulations before, American Banker reported. He challenged rules established by the Dodd-Frank Act, arguing that agencies did not adequately measure the impact those rules would have on companies’ profitability.
Currently, he’s leading a private equity and hedge fund industry lawsuit against new SEC private fund rules established in August 2023.
Michael Barr, the Federal Reserve’s supervision chief, said earlier this month the Fed is considering possible revisions to the proposed banking regulations.
“We want to make sure that the rule supports a vibrant economy that supports low- and moderate-income communities, that gets the calibration right upon things like mortgages,” he said, as reported by Reuters. “So the public comment that we’re getting on this is really critical for us getting it right. We take it very, very seriously.”
One rule is predicated on the notion that large government pension funds are bad credit risks, while another would make it more expensive for banks to do things like help airlines hedge against the price of jet fuel, according to Semafor.
There are also escalating charges for “operational risks,” essentially screw-ups. Barr suggested operational risk calculations are among the changes being considered.
The Fed plans to publish the results of a survey on the impact of the pending reforms.
Reuters and The Associated Press contributed to this report.
