Fed proposes easing capital requirements for big Wall Street banks, potentially positive for banking stocks.

From CNBC: 2025-06-25 14:05:00

The Federal Reserve is proposing to ease a key capital rule that banks say limits their ability to operate. The enhanced supplementary leverage ratio regulates the capital banks should keep on their balance sheets. The proposed changes would lower capital requirements for big banks, subsidiaries, and globally systemic important banks.

Fed Chair Jerome Powell supports the changes, stating that the leverage ratio has become more binding due to an increase in low-risk assets on bank balance sheets. The plan aims to allow banks to take on more lower-risk inventory like Treasurys, rather than treating them the same as high-yield bonds for capital purposes.

Current Vice Chair for Supervision Michelle Bowman and Governor Christopher Waller support the proposal, believing it will build resilience in U.S. Treasury markets. However, governors Adriana Kugler and Michael Barr oppose the move, stating it may not help in times of stress and could lead banks to prioritize activities with the highest return over Treasury intermediation.

The proposed changes align with Basel standards for banks globally. The new regulations aim to promote safety, soundness, and financial stability while addressing unintended consequences of bank regulation. The Fed will be voting on the new capital rules on Wednesday at 2 p.m. ET.

Read more: Divided Fed proposes rule to ease capital requirements for big Wall Street banks