Manchin Advocates for Change in Bank Capital Rule, Inflation Act Credits

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TL/DR –

US Senator Joe Manchin expressed concern about a proposed rule to modify bank capital rules for banks with over $100 billion in assets, arguing it could limit the effectiveness of the Inflation Reduction Act and reduce financing options for projects. He objected that the proposed rule would increase capital levels for tax equity investments, making it more expensive for banks to support energy projects and reduce the desirability of non-publicly traded equity investments. He requested banking regulators maintain current rules governing banks’ interaction with the tax equity market, thus maintaining financial security, national security, and energy security.


U.S. Senator Manchin Expresses Concern Over Proposed Rule by Federal Reserve

U.S. Senator Joe Manchin has written to Jerome Powell, Chair of the Federal Reserve, Martin Gruenberg, Chair of the Federal Deposit Insurance Corporation (FDIC), and Michael Hsu, Acting Comptroller of the Currency, expressing concern over a proposed rule that could potentially impact banks with assets over $100 billion. Full letter available here.

Implications of the Proposed Rule

The proposed rule seeks to modify bank capital rules by increasing capital levels for tax equity investments. This change could limit financing options for projects benefiting from credits under the Inflation Reduction Act, thus undermining the law’s effectiveness.

Effects on Energy Projects

The Inflation Reduction Act was passed in August 2022 to improve America’s energy security and address the national debt. The proposed rule, however, may increase financing costs for banks supporting innovative energy projects, rendering non-publicly traded equity less desirable due to increased reserve requirements. This, in turn, could discourage energy companies from seeking out credits, undermining the effectiveness of the Act.

Fears Over American Energy Security

With reduced financial incentives, banks may seek other investment opportunities, and developers may halt investments. Senator Manchin warns that the new rule threatens America’s energy security amid heightened geopolitical uncertainty. Banks play a major role in the $60 billion tax equity market, with an estimated 80-90% of energy-related tax equity projects reliant on bank financing. This financial backing is crucial for the tax credits authorized by Congress to work as intended.

Call to Maintain Current Rules

Senator Manchin is requesting that the proposed changes to risk weights for non-publicly traded tax equity exposures be rescinded, and the current rules governing banks’ interaction with the tax equity market be maintained. He outlines the importance of balancing sound banking practices with advancing a critical domestic market, cautioning that the proposed rule should not jeopardize American economic and energy priorities or national security.


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