US regulators seek to reduce capital requirements for big banks to boost Treasury trading

From Yahoo Finance: 2025-06-18 13:20:00

US bank regulators are looking to reduce a key capital buffer by up to 1.5 percentage points for big lenders due to concerns about trading constraints in the $29 trillion Treasuries market. The Federal Reserve, FDIC, and OCC are focusing on the enhanced supplementary leverage ratio, affecting major banks like JPMorgan Chase, Goldman Sachs, and Morgan Stanley.

The proposal would lower the eSLR requirement to 3.5% to 4.5%, down from the current 5%, for bank holding companies. Banking subsidiaries would also see their requirement reduced to 3.5% to 4.5%, down from the current 6%. The revisions are similar to changes made in 2018 under President Donald Trump’s administration.

The KBW Bank Index rose after the news, with JPMorgan and Wells Fargo shares climbing. The proposal aims to change the overall ratio instead of excluding specific assets like Treasuries, but may seek public comment on whether Treasuries should be carved out of the calculation. The Fed and FDIC plan to discuss the plan at upcoming meetings.

Fed Chair Jerome Powell supports potential revisions to the leverage ratio standards to enhance banks’ roles as intermediaries in the market. The industry argues that the rule hinders their ability to invest in Treasuries during volatility. Treasury Secretary Scott Bessent estimates tweaks to the rule could reduce Treasury yields. Former Fed officials caution against deregulation, suggesting more targeted solutions are needed.

Read more: US Plans to Ease Capital Rule Limiting Banks Treasury Trades