Bank leads shocked regulators. Now there will be a restriction.

A year after a series of bank runs threatened the financial system, government officials are preparing to unveil a regulatory response aimed at preventing future crises.

After months of floating solutions at conferences and in quiet conversations with bank executives, the Federal Reserve and other regulators could unveil new rules this spring. In any case, some policymakers hope to announce their proposal before Ashes regulatory-focused conference in June, according to a person familiar with the plans.

The interagency clampdown would come on top of another set of proposed and potentially costly regulations that have created tension between big banks and their regulators. Taken together, the proposed rules could further confuse the industry.

The goal of the new policy would be to prevent the kind of crushing problems and bank runs that brought down Silicon Valley Bank and a string of other regional lenders last spring. The expected adjustments focus on liquidity, or a bank’s ability to act quickly amid turmoil, in direct response to problems that became apparent during the 2023 crisis.

The banking industry has been unusually vocal in criticizing the already proposed rules known as ‘Basel III Endgame’, the US version of an international accord that would eventually force big banks to hold more cash-like assets called capital . Bank lobbies have a major advertising campaign arguing that it would hurt families, homebuyers and small businesses by undermining credit.

Last week, Jamie Dimon, the CEO of JPMorgan Chase, the nation’s largest bank, told clients at a private meeting in Miami Beach that, according to a recording heard by The New York Times, regulators had done “nothing” since last year. had tackled the problems that led to the failures of mid-sized banks in 2023. Mr. Dimon has complained that Basel’s capital proposal targeted larger institutions that were not at the center of last spring’s collapse.

Last year’s tumult came as depositors at regional banks, spooked by losses on bank balance sheets, began to worry that the institutions would collapse and quickly withdrew their deposits. The runs were related to problems with bank liquidity – a company’s ability to quickly access money in a panic – and were concentrated among large, but not huge, banks.

Because the new proposal is likely to tackle these issues head-on, it could be harder for banks to vocally oppose it.

It’s likely “a response to what happened last year,” said Ian Katz, managing director at Capital Alpha Partners. “That makes it a little bit harder for the banks to push back as vociferously.”

While details are not yet finalized, the new proposal will likely include at least three provisions, according to people who have spoken to regulators about what is in the works. The rules are expected to be proposed by the Fed, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Coin.

First, the new proposal would encourage or perhaps even force banks to put themselves in a position to borrow from the Fed’s short-term funding option, the so-called discount window. The tool is intended to give banks access to financing in difficult times, but companies have long been reluctant to use it, fearing that tapping it would signal to investors and savers that they are in a difficult position located.

Second, the proposal is likely to treat certain customer deposits differently a key arrangement This is intended to ensure that the banks have sufficient money available to get through a difficult period. Regulators could recognize that some savers, such as those with accounts too large for government insurance or those involved in businesses like crypto, are more likely to withdraw their money in times of trouble.

And finally, the new rules could determine how banking regulations take into account so-called held-to-maturity securities, which are intended to be held and are difficult to liquidate in times of stress without incurring large losses.

All these measures would tie in with the story of the collapse of Silicon Valley Bank last March.

Several intertwined problems led to the bank’s demise – and the wider chaos that followed.

The California bank had entered a financial slowdown and had to liquidate assets it had initially classified as held-to-maturity. Silicon Valley Bank was forced to admit that higher interest rates had sharply eroded the value of these securities. When the losses were made public, the bank’s depositors panicked: many of them had bills exceeding the $250,000 covered by government insurance. Many uninsured savers asked to withdraw their money in one go.

The bank was unwilling to lend money quickly through the Fed’s discount window, and it struggled to access enough fast financing.

When it became clear that Silicon Valley Bank would fail, depositors across the country began withdrawing their money from their own banks. Government officials had to intervene on March 12 to ensure banks generally had reliable sources of funding – and to reassure nervous savers. Even with all those interventions, other collapses followed.

Michael Hsu, the acting comptroller of the currency, gave a speech in January arguing that “targeted regulatory improvements” were needed in light of last year’s crisis.

And Michael Barr, the Fed’s vice chairman for supervision, has said regulators are forced to take into account the fact that some savers are more likely than others to withdraw their money in times of trouble.

“Some forms of deposits, such as those from venture capital firms, high net worth individuals, crypto firms and others, may be more susceptible to faster runs than previously thought,” he said in a recent speech.

It is likely that banks will oppose at least some – potentially costly – provisions.

For example, banks are expected to hold high-quality assets that can help them make money to get through tough times. But the rules could force them to acknowledge for regulatory purposes that their held-to-maturity government bonds would not be sold for full value in a pinch.

That would force them to stock up on more safe debt, which is typically less profitable for banks to hold.

Bank executives regularly argue that the costs of complying with stricter supervision ultimately trickle down to consumers in the form of higher fees and rates on loans, and benefit less heavily regulated competitors, such as private equity firms.

But the very fact that banks have been so outspoken about capital regulations could give them less room to complain about the new liquidity rules, says Jeremy Kress, a former Fed bank regulator and now co-faculty director of the Center of Michigan University. about finance, law and policy.

“There is danger for the boy who cried wolf,” Mr. Kress said. “If they fight every reform tooth and nail, their criticism will begin to lose credibility.”