Fed’s Relaxed Capital Requirements Could Be Days Away

The Federal Reserve is set to unveil relaxed capital requirements for U.S. banks.

That’s according to a speech Thursday (March 12) by Fed Vice Chair for Supervision Michelle Bowman, who said the new proposals should arrive in the coming week.

“These changes to the capital framework eliminate overlapping requirements, right-size calibrations to match actual risk, and comprehensively address long-standing gaps in our prudential framework,” Bowman said at a Cato Institute event on the Basel III policy rules.

Bowman said the Fed expects the proposal tied to Basel III will mean a small increase in capital requirements for Wall Street banks, similar to what is expected in Great Britain.

“Smaller banks, which are more focused on traditional lending activities, will see slightly larger reductions in capital requirements,” she said. “These changes will maintain resilience and provide flexibility to provide credit to U.S. households and businesses.”

The new measures would also feature a “standardized approach” that would allow lenders outside of ones considered “global systemically important” banks streamline their risk-based capital methodologies according to a single set of calculations, Bowman said.

A report last year by the Financial Times (FT) said that American banks could realize $2.6 trillion in lending capacity due to relaxed financial regulations. The report cited research from consultancy Alvarez & Marsal that showed a regulatory rollback would likely open up nearly $140 billion in capital for Wall Street lenders.

As the FT noted, the U.S. government has taken on a more pro-banking stance toward oversight since President Donald Trump’s second term began, with regulators vowing to relax several rules requiring financial institutions to increase their capital buffers in the wake of the 2008 financial crisis.

Meanwhile, Bowman warned last year that banks were facing increased competition from nonbank financial institutions, which already control a significant share of lending.

Testifying before the House Financial Services Oversight Committee, she said nonbanks are “providing strong competition to regulated banks without facing the same capital, liquidity, and other prudential standards.”

Bowman told the committee that banks must be “empowered to compete effectively with nonbanks” through innovations in payments and digital assets with regulatory clarity.

FDIC Chairman Travis Hill approached the point from a different direction, telling lawmakers that his agency was reviewing its bank resolution bidding process to “enable the participation of nonbank entities” under a new pre-qualification system for failed-bank auctions.