Trump administration prepares biggest bank capital rollback since 2008

According to the Financial Times, the Trump administration is moving forward with a sweeping plan to loosen one of the toughest capital requirements imposed on US banks after the 2008 financial collapse.

Officials inside Trump’s White House, along with top regulators, are finalizing a proposal to weaken the supplementary leverage ratio (SLR), a rule that forces the biggest American banks to hold a fixed amount of top-tier capital against all of their assets, including loans and off-balance sheet exposures like derivatives.

The SLR was introduced in 2014 as part of post-crisis safeguards meant to limit excessive risk-taking. But under Trump’s current term in office, financial deregulation has returned to the top of the national agenda. Federal regulators are expected to announce their full proposal by the summer.

Lobbyists demand change, regulators prepare

For years, large banks and their Washington lobbyists have argued the SLR is flawed. They say it penalizes lenders for holding low-risk assets such as US Treasuries, limiting their ability to extend credit or support the massive $29 trillion Treasury market.

Greg Baer, the chief executive of the Bank Policy Institute, said, “Penalising banks for holding low-risk assets like Treasuries undermines their ability to support market liquidity during times of stress when it is most needed. Regulators should act now rather than waiting for the next event.”

The pressure has worked. Inside Trump’s federal government, regulators at the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation are all treating SLR reform as urgent. Scott Bessent, Trump’s Treasury Secretary, told reporters last week the reform was “a high priority” across the agencies.

Fed Chair Jay Powell also signaled his support earlier this year, saying, “We need to work on Treasury market structure, and part of that answer can be, and I think will be, reducing the calibration of the supplemental leverage ratio.”

Currently, the eight biggest banks in the US are required to hold tier-one capital—including equity and retained earnings—equal to at least 5% of their total leverage exposure. That’s well above the levels required for major foreign banks. In Europe, China, Canada, and Japan, most big banks face ratios between 3.5% and 4.25%. Lobbyists are pushing to align US standards with these international benchmarks.

Critics question timing as risks increase

But not everyone agrees now is the time to slash capital rules. Critics say the global economy is still dealing with too much uncertainty, and weakening buffers could leave US banks more exposed.

One workaround being considered is to exclude low-risk assets like Treasuries and central bank deposits from the SLR formula entirely. This was allowed temporarily during the pandemic.

Analysts at Autonomous said that reinstating this exemption could free up nearly $2 trillion of balance sheet space for the largest banks. But regulators in Europe have warned this could backfire globally.

If the US grants relief on sovereign debt, other countries might face calls to do the same for Eurozone bonds or UK gilts, which could trigger new imbalances in the international system.

There’s also debate over how much US banks would actually benefit as many already face tighter constraints from other rules like the Fed’s annual stress tests or risk-weighted capital ratios. According to FT, only State Street is truly bound by the SLR right now.

Still, though, the industry isn’t backing off. Sean Campbell, chief economist at the Financial Services Forum, which represents the eight biggest US banks, said, “Aligning US rules with international standards would give more capital headroom to the big banks than exempting Treasuries and central bank deposits from the supplementary leverage ratio calculations.”

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