(Bloomberg) -- Federal Reserve Governor Michelle Bowman said the central bank’s controversial proposal to boost lenders’ capital needs “substantive changes” and the Fed should seek comment on any revised plan, a move that would delay its finalization.

Bowman, who last year voted against issuing the proposal for public comment, said she is “cautiously optimistic” that officials can work toward a compromise that would garner broader support for the plan led by Vice Chair for Supervision Michael Barr. Bowman’s colleague, Christopher Waller, who also voted against issuing the proposal last year, said Tuesday it needs a “major overhaul” and may have to be scrapped altogether.

Given the significant pushback on the rule from a variety of stakeholders, “agencies are obligated to think carefully about the best path forward,” Bowman said in Wednesday remarks to the US Chamber of Commerce in Washington. 

Federal regulators in July unveiled a long-awaited plan that would require the biggest lenders to increase their capital levels by 19%, a move aimed at preventing future bank failures and another financial crisis.

Since then, regulators have faced one of Wall Street’s strongest lobbying campaigns. Banks say the plan overstates how much cushion lenders would need and claim it will make them less competitive and home and business loans less affordable. Supporters say the proposal incorporates lessons from the 2008 financial crisis and the 2023 banking turmoil, which featured three of the industry’s four biggest failures.

What banks “avoid debating is that the overwhelming impact of higher bank capital is — by design — to restrict how risky and how big the more speculative aspects of their business, notably their trading and investment bank operations, can grow,” Americans for Financial Reform, a Washington-based coalition of consumer and investor advocates, wrote in a comment letter to regulators on Tuesday, the deadline for feedback on the proposal.

Read More: Fed’s Michael Barr Is Open to Concessions on Bank Capital Rules

On Wednesday, Bowman criticized the plan’s “excessive calibration” of capital levels. The large increase in capital requirements “could result in significant harm to the US economy through the impact on US businesses, while failing to achieve the intended goals of improving safety and soundness and promoting financial stability,” she said.

She said the regulation also needs to be tailored to the size and complexity of banks instead of imposing a step-up in capital requirements for institutions $100 billion or larger.

“The critical role of tailoring must be incorporated as a foundational element of these regulatory reforms,” she said.

JPMorgan’s Comment

Top lender JPMorgan Chase & Co. has also weighed in, taking aim at regulators’ Basel III and another plan that revises the biggest banks’ risk-based capital surcharges.

The firm noted that policymakers continue to stress that large banks are well capitalized. “Despite this widespread acknowledgment, the agencies published these two proposals that would materially increase capital requirements for those same large banks, with very little publicly disclosed quantitative analysis justifying the need to do so,” Jeremy Barnum, the company’s chief financial officer, wrote in a comment letter dated Tuesday.

JPMorgan proposes adjusting the economic growth surcharge for global systemically important banks. It also echoed criticism of the regulators’ approach to operational risk, asking for revisions.

The Fed’s Waller has criticized the plan’s capital allocations tied to operational risk — which includes losses due to fines and lawsuits. Operational risk represented more than half of the increase, “and the way it’s calculated made absolutely no sense to me whatsoever,” he said in a speech Tuesday.

Criticism has come from trade groups including the Mortgage Bankers Association and the National Association of Home Builders. The National Association of Manufacturers warned that the rule would hurt businesses of all sizes in its industry.

“In particular, it would harm smaller manufacturers who lack access to the capital markets and must rely on bank funding, manufacturers who do not have publicly traded securities, and manufacturers who rely on banks to help them manage financial risks,” Charles Crain the group’s vice president of domestic policy, wrote in a letter to regulators.

(Re: Updates with additional industry comments in last two paragraphs.)

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