The Federal Reserve's planned revamp of capital requirements for large banks has exposed a rare rupture among the industry's most influential firms. Once united in a push to relax the surcharge that applies to global systemically important U.S. banks, JPMorgan, Bank of America, Goldman Sachs and Morgan Stanley are now in open disagreement over a single technical adjustment with billions of dollars at stake.
At the heart of the dispute is the Fed's proposed alteration to the GSIB surcharge - a capital add-on designed to capture the systemic footprint of the largest U.S. banks. In March, the Fed suggested making the surcharge more risk-sensitive by changing how short-term wholesale funding is treated. That category includes instruments like repurchase agreements and commercial paper, funding types regulators say can evaporate in stressed markets.
The proposal caught JPMorgan and Bank of America off guard because it appeared likely to shift the distribution of capital relief toward firms that rely more heavily on short-term wholesale funding, notably Goldman Sachs and Morgan Stanley. Executives at the two largest U.S. banks, which have comparatively strong deposit franchises, saw the expected outcome as inconsistent with one of the main regulatory rationales for easing capital rules - namely, to promote lending to the broader economy.
Under the Fed's broader package, capital requirements would fall in aggregate. But JPMorgan estimated in a June filing that it would forfeit roughly $13 billion of additional capital relief because of the funding-measure change; Bank of America put its potential lost relief at about $9 billion. By contrast, the Fed filings and public analyses indicate Goldman Sachs and Morgan Stanley would each secure an incremental benefit on the order of $1 billion to $2 billion.
That divergence has led to last-minute lobbying and friction among the firms, complicating the Fed's effort to deliver a final rule before the political landscape shifts next year and Congress intensifies scrutiny. "They’re going to have to choose," said Christopher Appel, director of banking policy at Washington advocacy group Better Markets, referring to Fed officials weighing the competing arguments. Appel, who served at the Fed until March, characterized the surcharge as a key remaining safeguard as overall capital levels are trimmed and said the proposed revision would better assess funding risks. "It’s absolutely critical that the Fed get this right," he added.
Spokespeople for the Federal Reserve, JPMorgan, Goldman Sachs and Morgan Stanley declined to comment. A Bank of America spokesperson said the firm supports changes "that drive Main Street lending, job creation, and affordability."
Last-minute jockeying
While the industry broadly supports the Fed’s capital overhaul, the banks have used the end stage of the rulemaking to press for outcomes that maximize their own positions. JPMorgan and Bank of America executives have lobbied Fed officials - at times in joint sessions - to push back against the funding-measure change, according to individuals familiar with the discussions. Their principal contention is that the new formula could compress their lending capacity and steer activity toward higher-risk trading operations.
"As proposed, the Federal Reserve would incentivize trading activity over lending to small businesses and customers," JPMorgan’s business banking chief Stevie Baron wrote in a blog post last week, reiterating that concern. Goldman Sachs and Morgan Stanley, by contrast, have urged the Fed to finalize the revision promptly, arguing in comment letters that it would enhance the surcharge's risk sensitivity and transparency.
Public Fed memos show that JPMorgan and Morgan Stanley executives have met with regulators to discuss the GSIB proposal at least four times each since March. Observers say it remains unclear which side will prevail. Fed Vice Chair for Supervision Michelle Bowman has reportedly told banks to limit feedback, and several sources believe she will adhere closely to the current draft as she works to complete the rule by year-end.
History and mechanics of the surcharge
The GSIB surcharge was developed after the 2007-2009 financial crisis. Originally it comprised five systemic risk factors, each assigned a 20% weight - a design that included short-term wholesale funding as one of the components. For years, banks argued the approach was overly rigid and did not accurately capture risk, and that the surcharge deserved revision.
The campaign to change the rule gained traction when the Fed started a comprehensive review of capital frameworks in 2022. That process catalyzed an unprecedented industry pushback that culminated in the central bank proposing adjustments to the surcharge and other capital measures.
Under the current calculation, the Fed measures short-term wholesale funding as a ratio against risk-weighted assets. While that method normalized comparisons across banks, it effectively increased the weight of short-term funding in the overall surcharge calculation to roughly 30%. To address that distortion, the Fed has proposed eliminating the ratio and instead measuring the absolute level of short-term wholesale funding exposure.
That change would benefit GSIBs that currently show high ratios of short-term funding to risk-weighted assets. According to federal data cited in regulatory filings, short-term wholesale funding represented about 37% of Morgan Stanley’s liabilities and 30% of Goldman Sachs’ liabilities. By comparison, Bank of America’s short-term wholesale funding was about 24% and JPMorgan’s about 21%.
Morgan Stanley has been especially active in advocating for the funding tweak, two sources said. Its comment letter contends the revision could enhance liquidity in the Treasury market by lowering the capital banks must hold to trade government securities, a change the firm argues would help set lending rates. Goldman Sachs described the proposal in its letter as "a more transparent and economically grounded measure."
Implications and open questions
The debate centers on the trade-offs between aligning the surcharge more closely with measured exposures and preserving incentives for banks with large deposit bases to lend. JPMorgan and Bank of America worry that reducing their incremental relief relative to competitors could limit capital available for loans and for returning cash to shareholders. Goldman Sachs and Morgan Stanley argue the new approach better reflects funding risk and could free capital to support market-making and secondary-market trading of government securities.
Who ultimately prevails will shape the distribution of capital burdens across the biggest U.S. banks and could influence where banks deploy funds - whether into traditional lending channels or into trading and market-making activities. Fed officials face a narrow timeline to decide, and several observers expect finalization by year-end, though the outcome remains uncertain.
Summary of positions
- JPMorgan and Bank of America: Oppose the proposed funding-measure change, saying it would reduce their share of capital relief and could discourage lending to the real economy.
- Goldman Sachs and Morgan Stanley: Support the revision, arguing it produces a clearer, more economically accurate measure of short-term funding risk and would provide additional capital relief to firms more reliant on wholesale funding.
- Regulators and observers: The Fed has signaled a desire to complete the rulemaking before year-end; advocacy groups like Better Markets stress the surcharge remains an important safeguard as overall requirements are trimmed.