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Wall Street's Dangerous Bet Lobbying for Less Regulation

Wall Street's Dangerous Bet Lobbying for Less Regulation

Jun 3, 2024

Wall Street's Dangerous Bet Lobbying for Less Regulation

The balance of power in the United States is experiencing a notable shift as major banks, after intense lobbying efforts, have persuaded Congress and the Federal Reserve to consider scaling back the financial reserves required for so-called market risk. These lobbying efforts, characterized by substantial ad spending and lavish dinners, underscore the financial sector’s influence over regulatory frameworks.

This development is particularly concerning given the recent failures of significant financial institutions, which saw their government bonds plummet in value, effectively rendering them insolvent had it not been for taxpayer interventions. The proposed reduction in buffer requirements from the current standards — which were put in place to safeguard against similar crises — could potentially halve the current $75 billion reserve, freeing up capital for banks to increase shareholder dividends or to engage in riskier loans to hedge funds.

As Congress moves forward with legislation to exempt nearly 5,000 banks with up to $50 billion in assets from several capital regulations, the safety net designed to protect taxpayers from financial bailouts appears to be thinning. The influence of bank lobbyists, who have a track record of shaping banking regulations to their favor, raises questions about the stability of the financial system and the risks of future taxpayer-funded bailouts.

The recent banking crisis of the previous year revealed a worsening trend in the banking industry since the 2008 financial meltdown. The reliance on taxpayer money, either directly or through the Federal Reserve’s lender of last resort facility, has become a strategic fallback for banks that engage in risky financial activities.


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