US Regulators Reportedly Scaling Back Bank Capital Requirements

The U.S. is reportedly preparing to make substantial cuts to banks’ capital requirements.

That’s according to a report Thursday (May 15) by the Financial Times (FT), which notes that the cuts would be the largest in more than a decade, and the latest in a series of deregulation efforts by the Trump administration.

Sources familiar with the matter told the FT that regulators in the coming months would reduce the supplementary leverage ratio, which requires big banks to have a set amount of high-quality capital against assets like loans and things like derivatives.

The rule was established in 2014, part of a series of reforms born out of the 2008-2009 financial crisis. The banking industry, the report adds, has lobbied against the rule for years, arguing it lessens their ability to extend credit, penalizes lenders for holding lower-risk assets like U.S. Treasuries, and curbs their ability to take part in the government debt market.

“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,” said Greg Baer, CEO of the Bank Policy Institute. “Regulators should act now rather than waiting for the next event.”

But critics warn this is a bad time to roll back bank capital requirements, in light of recent market volatility and policy upheaval under the Trump White House.

“Given the state of the world, there are all kinds of risks out there — including for US banks the role of the dollar and the direction of the economy — it doesn’t sound like the right time to relax capital standards at all,” Nicolas Véron, senior fellow at the Peterson Institute for International Economics, told the FT.

The news comes on the heels of a series of deregulation moves in Washington. The past week has seen the Consumer Financial Protection Bureau (CFPB) announce that it planned to rescind 67 policy and regulatory guidance documents going back more than a decade.

In addition, the agency is also reportedly set to ask a judge to vacate Rule 1033, the basis for open banking regulations allowing customers to freely share their bank and credit card account information with FinTechs.

Speaking with PYMNTS earlier this week, former Obama administration Treasury official Amias Gerety argued that just dropping enforcement without rewriting the underlying regulations could create a chaotic regulatory landscape for banks and FinTechs.

“If you’re going to rewrite the rules, you have to rewrite the rules. That’s what the law says,” Gerety said, adding that banks, the larger ones especially, are taking a cautious approach to these new developments.

“The more sophisticated you are, the more cautious you’re going to be,” he warned.