U.S. regulators are set to consider one of the most significant rollbacks of bank capital rules since the 2008 financial crisis, marking a major win for lenders seeking relief under the Trump administration.
On Wednesday, the Federal Reserve will discuss changes to the enhanced supplementary leverage ratio (eSLR), a regulation requiring the largest U.S. banks to maintain higher capital levels based on their size.
The Federal Deposit Insurance Corporation (FDIC) is expected to review the proposal on Thursday.
Currently, major banks like JPMorgan Chase, Bank of America, Goldman Sachs, and Morgan Stanley must keep their eSLR ratios at 5%.
The proposed change would lower this requirement by 1.5 percentage points, according to Bloomberg.
This adjustment aims to facilitate lending and expand the pool of buyers for U.S. Treasurys amid growing concerns about foreign demand for American debt.
Treasury Secretary Scott Bessent has indicated that easing this rule is part of a broader deregulatory effort by the Trump administration.
Analyst Jaret Seiberg from TD Securities noted that this change would be “broadly positive for the biggest banks,” benefiting trading banks more than traditional commercial banks.
Michelle Bowman, the Fed’s new banking regulator, stated in a speech that revisiting the eSLR requirement is just the beginning of a larger review of capital regulations.
She emphasized that this proposal is a necessary step toward reforming what she sees as outdated capital requirements.
Future adjustments may also target surcharges on globally significant banks and the asset thresholds that dictate regulatory rules. This move is likely to please leaders of major banks, including JPMorgan CEO Jamie Dimon, who has advocated for a reassessment of regulatory rules.
On July 22, the Fed will host a conference to discuss the capital framework for U.S. banks. Additionally, the Fed announced that it will no longer factor in reputation risk during its bank exams, signaling further shifts under new leadership.
Bowman stressed the importance of a solid capital foundation for maintaining safety and financial stability, arguing that capital regulations should adapt to changing conditions rather than remain static.
Big banks and their lobbyists have long criticized the constraints of leverage capital requirements, which can hinder their ability to respond during crises.
This issue became particularly acute during the early stages of the COVID-19 pandemic, when the U.S. monetary and fiscal response greatly expanded the $30 trillion U.S. Treasury market.
Bowman suggested that reforms to return leverage ratio requirements to their traditional role could enhance Treasury market resilience and reduce the likelihood of Fed intervention during turbulent times.
Fed Chair Jerome Powell has also expressed concerns about Treasury market liquidity and identified reducing the supplementary leverage ratio as a necessary step.
