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Is Federal Reserve Chair Jerome Powell ready to take on the big banks? There’s a chance we’ll find out this week.

Powell is set to appear before the Senate Banking and House Financial Services Committees Tuesday and Wednesday. He’s there to talk monetary policy, but he’s unlikely to offer many surprises on that front. These hearings are a prime opportunity to get Powell on the record about myriad other topics.

Bank lobbyists have been discreetly laying the Capitol Hill groundwork to nudge Powell on their top concern this year — fending off what could be a significant hike in their capital requirements. Big bank leaders were in Washington making the case as recently as last week. The rules at issue determine how much funding lenders must have available to absorb losses.

There is no regulatory or legislative issue that big banks and their trade groups are spending more time on this year, and they are in some ways flying blind. 

The Fed’s point man on regulation — Vice Chair for Supervision Michael Barr — has signaled that the capital buffers that big banks have for bad times are insufficient. He has undertaken a “holistic review” of capital rules. While there’s been little transparency into his process, and there’s no guarantee he’ll even release his findings, bank representatives are convinced he’s building the groundwork for stricter regulations. They believe that the FDIC will also support a hike in capital requirements. A capital proposal from the agencies is expected by the summer.

The positions of Powell and other Fed officials are less clear. 

Big bank executives and their lobbyists have made the case directly to top lawmakers — including those who will grill Powell this week — that forcing banks to tap more funding to weather headwinds would slow the economy by raising their costs and restricting the services they can offer. Watchdogs like Better Markets argue that capital standards should be raised to protect the economy from bank failures and taxpayer-funded bailouts.

It’s clear the bank lobby has made headway, so expect Powell to get questions about this. That may prompt him to justify — or not — the need for imposing new regulations on banks when the U.S. economy is struggling with inflation and a potential recession.

On Friday, Sen. Tim Scott (R-S.C.) — the top Republican on the Senate Banking Committee and a potential presidential candidate — wrote a letter to Powell with nine other Republicans. They put Powell on notice that, in their view, Barr’s assessment of insufficient bank capital is “unfounded” and that the Fed must avoid violating a 2018 law that eased bank regulations.

“[I]t is incumbent on you to oversee any such review,” the senators said in their warning letter, “to ensure that the Federal Reserve’s work is consistent with the law, the risks, and the commonsense principles that support tailored capital requirements and the continued availability of a broad swath of financial services for everyday Americans.”

Happy Monday — It’s another busy week. We don’t want to miss anything, so please send tips to [email protected] and [email protected].

Monday … FDIC Chair Martin Gruenberg and SEC Commissioner Hester Peirce are among the speakers at the Institute of International Bankers conference in Washington ... SEC Chair Gary Gensler speaks at the Council of Institutional Investors conference in Washington at 5:15 p.m. … Tuesday … Powell testifies at Senate Banking at 10 a.m. … Larry Summers and Olivier Blanchard will debate the future of interest rates at the Peterson Institute at 11:30 a.m. … Wednesday … Powell testifies at House Financial Services at 10 a.m. … CFTC Chair Rostin Behnam testifies at Senate Agriculture at 10 a.m. … Inspectors general for the Fed, CFPB, Treasury and SEC testify at a House Financial Services oversight subcommittee hearing at 2 p.m. … Thursday … Fed Vice Chair for Supervision Michael Barr talks crypto at the Peterson Institute at 10 a.m. … The new House Financial Services digital assets subcommittee holds its first hearing at 2 p.m. … Friday … Treasury Secretary Janet Yellen testifies at House Ways and Means at 9 a.m. … The House Financial Services housing and insurance subcommittee has a flood insurance hearing at 9 a.m. …

Breaking: Warren leads warning to Gensler on climate rule — Declan Harty scoops that more than 50 Democrats led by Sen. Elizabeth Warren (D-Mass.) and Rep. Dan Goldman (D-N.Y.) are urging SEC Chair Gary Gensler to push ahead with a landmark climate disclosure rule and not back down in the face of industry resistance.

If the SEC waters down the plans, the agency "would be failing its duty to protect investors,” they said.

What Powell will say about rates on Capitol Hill — Bloomberg: “Federal Reserve Chair Jerome Powell is expected to echo fellow central bankers in suggesting interest rates will go higher than policymakers anticipated just weeks ago if economic data continue to come in hot.”

— San Francisco Fed President Mary Daly said Saturday that “in order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will likely be necessary.”

House GOP ramps up crypto, Biden agency oversight — After a slow start, this is the week that the House Financial Services Committee will really start to flesh out its Biden administration oversight agenda.

— Crypto: The new digital assets subcommittee will have its first hearing Thursday. Titled “Coincidence or Coordinated? The Administration’s Attack on the Digital Asset Ecosystem,” the subcommittee will have plenty to dig into after the SEC and the bank regulators spent the last couple months clamping down on the crypto industry. It’s another line of questioning you’ll probably hear from lawmakers during the Powell hearings, too.

— CFPB: Look for Republicans to float big changes to the consumer bureau at Thursday’s subcommittee hearing on how the agency is “ripe for reform.” It’s timely as Congress starts to talk about restructuring the CFPB now that the Supreme Court is reviewing whether to strike down the way it gets funding from the Fed. Subcommittee Chair Andy Barr has a bill that would subject the CFPB’s budget to congressional approval.

— IG findings: Officials from the inspector general offices that oversee the Fed, CFPB, SEC and Treasury will testify at this year's first oversight and investigations subcommittee hearing focused on “wasteful spending and regulatory overreach.”

China plots modest post-Covid expansion — China’s government is aiming for 5 percent economic growth in 2023, its lowest target in more than 30 years, the FT reports.

Inside Binance’s plan to avoid regulators (and recruit Gensler) — WSJ obtained messages and documents laying out how the world’s largest crypto exchange has tried to shield itself from U.S. regulators. An executive warned in a 2019 private chat that a lawsuit from U.S. officials would be like “nuclear fall out” for Binance’s business and its officers.

The company in 2018 tried to recruit Gary Gensler as an adviser when he was teaching at MIT. He declined but was “generous in sharing license strategies,” one Binance executive said.

Coindesk reports in another piece that an SEC official said agency staff believe Binance.US is operating as an unregistered securities exchange.

Asset managers pause popular ESG funds on EU uncertainty — Funds that comply with the EU’s highest classification for investment products claiming to deliver environmental, social and governance results are in high demand from investors. But Bloomberg reports that the pool is shrinking fast because asset managers are struggling to comply with European regulations.

New disclosures show what CEOs really make  — The WSJ has a breakdown of what companies are starting to reveal under the SEC’s new pay disclosure rules for corporate executives, who now have to report gains and losses in their stock awards.

Eli Lilly reported under old disclosure metrics that its CEO received $21.4 million last year, but the new measure showed his compensation actually reached $64.1 million.

Lagarde also sees higher rates for longer — FT: “Christine Lagarde has warned that underlying price pressures will remain ‘sticky in the short term’ and signalled that further interest rate rises from the European Central Bank are very likely as ‘inflation is a monster that we need to knock on the head’.”

Iraqis face hardships from new anti-money laundering rules — NYT: “[I]n a country with a primarily cash economy, the changes created unintended hardships for ordinary Iraqis who need dollars for travel abroad. Demand for dollars has increased and the cost in Iraqi dinars at some local currency traders has surged.”