Finance

Lawmakers are ‘demeaning their role’ by trying to influence the Fed

Published

9 months ago

September 17, 2024

US Representative Patrick McHenry (R-NC) speaks to members of the media outside the office of US House Speaker Kevin McCarthy (R-CA), at the US Capitol in Washington, DC, on October 3, 2023.

Mandel Ngan | AFP | Getty Images

Rep. Patrick McHenry (R–N.C.) sharply criticized other politicians on Tuesday for making public comments about what the Federal Reserve should do with its interest rate policy.

McHenry,the outgoing chair of the House Financial Services Committee, said it was an ‘”outrage” that some politicians are publicly lobbying the central bank about rate cuts.

“The outrage to me is … for instance, if you’re on the right, you say the Fed should be independent, except I think right now they should do this. And on the left, the same,” said McHenry, who is retiring from Congress at the end of this term.

“Senators that are trying to direct the Fed on rate policy are really demeaning their role. …. They’re demeaning their role as a United States Senator,” he added.

McHenry’s comments came one day before the U.S. central bank is widely expected to start cutting interest rates for the first time since 2020. Coming in the middle of a presidential election cycle, the change in Fed policy has stirred speculation as to whether the central bank would be influenced by political considerations. Chair Jerome Powell, first appointed by Trump and reappointed by President Joe Biden, has repeatedly denied that’s a factor.

On Monday, Democratic senators Elizabeth Warren of Massachusetts, John Hickenlooper of Colorado and Sheldon Whitehouse of Rhode Island called for the Fed to cut its benchmark lending rate by 0.75 percentage points, which is higher than the most aggressive market expectations. Warren and Whitehouse are both running for re-election in November while Hickenlooper’s term ends in 2026.

Republicans who have weighed in include former President Donald Trump, who said in an August press conference that he believes he should get a say on monetary policy if he wins in November. Sen. Mike Lee (R–Utah) also introduced a bill earlier this year that would abolish the Fed.

When asked about Trump’s remarks, McHenry said that “all presidents think they should give an input” but that the central bankers should ignore statements from politicians.

“The Fed should act in the way that the data indicates that they should act. Period,” McHenry said.

The remarks came at a conference hosted by Georgetown University’s Psaros Center for Financial Markets and Policy.

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Finance

Swiss government proposes tough new capital rules in major blow to UBS

Published

2 days ago

June 6, 2025

Business Finance News

A sign in German that reads “part of the UBS group” in Basel on May 5, 2025.

Fabrice Coffrini | AFP | Getty Images

The Swiss government on Friday proposed strict new capital rules that would require banking giant UBS to hold an additional $26 billion in core capital, following its 2023 takeover of stricken rival Credit Suisse.

The measures would also mean that UBS will need to fully capitalize its foreign units and carry out fewer share buybacks.

“The rise in the going-concern requirement needs to be met with up to USD 26 billion of CET1 capital, to allow the AT1 bond holdings to be reduced by around USD 8 billion,” the government said in a Friday statement, referring to UBS’ holding of Additional Tier 1 (AT1) bonds.

The Swiss National Bank said it supported the measures from the government as they will “significantly strengthen” UBS’ resilience.

“As well as reducing the likelihood of a large systemically important bank such as UBS getting into financial distress, this measure also increases a bank’s room for manoeuvre to stabilise itself in a crisis through its own efforts. This makes it less likely that UBS has to be bailed out by the government in the event of a crisis,” SNB said in a Friday statement.

‘Too big to fail’

UBS has been battling the specter of tighter capital rules since acquiring the country’s second-largest bank at a cut-price following years of strategic errors, mismanagement and scandals at Credit Suisse.

The shock demise of the banking giant also brought Swiss financial regulator FINMA under fire for its perceived scarce supervision of the bank and the ultimate timing of its intervention.

Swiss regulators argue that UBS must have stronger capital requirements to safeguard the national economy and financial system, given the bank’s balance topped $1.7 trillion in 2023, roughly double the projected Swiss economic output of last year. UBS insists it is not “too big to fail” and that the additional capital requirements — set to drain its cash liquidity — will impact the bank’s competitiveness.

At the heart of the standoff are pressing concerns over UBS’ ability to buffer any prospective losses at its foreign units, where it has, until now, had the duty to back 60% of capital with capital at the parent bank.

Higher capital requirements can whittle down a bank’s balance sheet and credit supply by bolstering a lender’s funding costs and choking off their willingness to lend — as well as waning their appetite for risk. For shareholders, of note will be the potential impact on discretionary funds available for distribution, including dividends, share buybacks and bonus payments.

“While winding down Credit Suisse’s legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands,” Johann Scholtz, senior equity analyst at Morningstar, said in a note preceding the FINMA announcement.

“Such measures may place UBS’s capital requirements well above those faced by rivals in the United States, putting pressure on returns and reducing prospects for narrowing its long-term valuation gap. Even its long-standing premium rating relative to the European banking sector has recently evaporated.”