Wall Street forecasts windfall for big US banks from Fed plan to ease leverage rule
[BENGALURU] Large US global banks can expect as much as US$6 trillion in additional balance sheet capacity and billions in freed up capital under a Federal Reserve plan to relax leverage rules, Wall Street brokerages estimated on Thursday (Jun 26).
The US Fed unveiled a proposal on Wednesday that would overhaul how much capital large global banks must hold against relatively low-risk assets, as part of a bid to boost participation in US Treasury markets.
Shares of JPMorgan Chase advanced 1.3 per cent, Morgan Stanley 1.2 per cent and Goldman Sachs 1.6 per cent, while Bank of America added 1 per cent and Citigroup 1.5 per cent. The S&P 500 Banks Index, which tracks large-cap US lenders, rose 1.4 per cent.
The plan, approved by a 5-2 Fed vote, marks the first in a possible series of deregulatory moves led by the central bank's new vice-chair for supervision, Michelle Bowman.
The proposal would reform the so-called 'enhanced supplementary leverage ratio' so that the amount of capital banks must set aside is directly tied to how large a role each firm plays in the global financial system.
'SLR reform is the first of many capital proposals we expect over Michelle Bowman's tenure,' Morgan Stanley analysts led by Betsy Graseck wrote in a note. It forecast that the proposal could free up US$185 billion for banks under its coverage.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
Treasury market boost?
The supplementary leverage ratio requires banks to hold capital against all assets equally, including low-risk US Treasuries – an approach critics said could discourage banks from holding government debt and limit their role in key funding markets.
Goldman Sachs analysts expects the rule change to free bank balance sheets by up to US$5.5 trillion.
'The changes to the SLR calculation should increase the availability (and potentially lower the cost) of short-term, secured financing for market participants, improving liquidity in financial markets and the US treasury market in particular.'
Fed officials described the changes as a necessary fix to a rule introduced after the 2008 crisis, saying the leverage requirement had grown over time to occasionally limit bank activity, especially as government debt surged in recent years.
'The Fed's proposal to calibrate eSLR should give the banking system meaningful capacity to expand its balance sheet in low-risk assets,' analysts at brokerage Barclays said.
'It makes sense for banks to utilise the theoretical leverage capacity as long as the return from investing in low-risk assets/activity is sufficient,' they said. REUTERS
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Times
5 hours ago
- Business Times
Wall Street forecasts windfall for big US banks from Fed plan to ease leverage rule
[BENGALURU] Large US global banks can expect as much as US$6 trillion in additional balance sheet capacity and billions in freed up capital under a Federal Reserve plan to relax leverage rules, Wall Street brokerages estimated on Thursday (Jun 26). The US Fed unveiled a proposal on Wednesday that would overhaul how much capital large global banks must hold against relatively low-risk assets, as part of a bid to boost participation in US Treasury markets. Shares of JPMorgan Chase advanced 1.3 per cent, Morgan Stanley 1.2 per cent and Goldman Sachs 1.6 per cent, while Bank of America added 1 per cent and Citigroup 1.5 per cent. The S&P 500 Banks Index, which tracks large-cap US lenders, rose 1.4 per cent. The plan, approved by a 5-2 Fed vote, marks the first in a possible series of deregulatory moves led by the central bank's new vice-chair for supervision, Michelle Bowman. The proposal would reform the so-called 'enhanced supplementary leverage ratio' so that the amount of capital banks must set aside is directly tied to how large a role each firm plays in the global financial system. 'SLR reform is the first of many capital proposals we expect over Michelle Bowman's tenure,' Morgan Stanley analysts led by Betsy Graseck wrote in a note. It forecast that the proposal could free up US$185 billion for banks under its coverage. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Treasury market boost? The supplementary leverage ratio requires banks to hold capital against all assets equally, including low-risk US Treasuries – an approach critics said could discourage banks from holding government debt and limit their role in key funding markets. Goldman Sachs analysts expects the rule change to free bank balance sheets by up to US$5.5 trillion. 'The changes to the SLR calculation should increase the availability (and potentially lower the cost) of short-term, secured financing for market participants, improving liquidity in financial markets and the US treasury market in particular.' Fed officials described the changes as a necessary fix to a rule introduced after the 2008 crisis, saying the leverage requirement had grown over time to occasionally limit bank activity, especially as government debt surged in recent years. 'The Fed's proposal to calibrate eSLR should give the banking system meaningful capacity to expand its balance sheet in low-risk assets,' analysts at brokerage Barclays said. 'It makes sense for banks to utilise the theoretical leverage capacity as long as the return from investing in low-risk assets/activity is sufficient,' they said. REUTERS
Business Times
6 hours ago
- Business Times
US durable goods orders soar in May
[WASHINGTON] Orders for long-lasting US manufactured goods rebounded sharply in May, boosted by a surge in commercial aircraft bookings, though economic uncertainty stemming from import tariffs remains a constraint for business spending on capital. Orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, jumped 16.4 per cent last month after a revised 6.6 per cent decline in April, the Commerce Department's Census Bureau said on Thursday (Jun 26). Economists polled by Reuters had forecast orders increasing 8.5 per cent after a previously reported 6.3 per cent decrease in April. Transportation equipment orders soared 48.3 per cent, driven by a 230.8 per cent surge in commercial aircraft orders, which are extremely volatile. Boeing reported on its website that it had received 303 aircraft orders, including 150 from Qatar Airways placed during President Donald Trump's visit to the Gulf Arab country in May. That compared with only eight orders in April. Outside the transportation industry, orders were muted. Economists say Trump's often shifting trade policy has left businesses in limbo while the duties already imposed have increased costs for companies. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up The Federal Reserve is also in a wait-and-see mode as policymakers monitor the economic fallout from the sweeping tariffs. Fed Chair Jerome Powell told lawmakers this week the US central bank needed more time to gauge if tariffs pushed up inflation before considering lowering rates. The Fed last week left its benchmark overnight interest rate in the 4.25 per cent-4.50 per cent range where it has been since December. Non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rebounded 1.7 per cent in May after an upwardly revised 1.4 per cent decline in April. Economists had forecast these so-called core capital goods orders edging up 0.1 per cent after a previously reported 1.5 per cent drop in April. Shipments of core capital goods rose 0.5 per cent after being unchanged in the prior month. Non-defense capital goods orders accelerated 49.4 per cent after plunging 19.1 per cent in April. Shipments of these goods were unchanged after advancing 3.6 per cent in April. Business spending on equipment accelerated sharply in the first quarter, helping to blunt some of the drag on gross domestic product from a flood of imports as businesses rushed to bring in merchandise before the tariffs came into effect. The Atlanta Fed is forecasting economic growth rebounding at a 3.4 per cent annualised rate in the second quarter, largely reflecting a reversal in the import flows. Data on retail sales, the housing and labour markets have suggested economic activity is softening. The economy contracted at a 0.5 per cent pace in the January-March quarter. REUTERS
Business Times
6 hours ago
- Business Times
US: S&P 500, Nasdaq open near record peak as Micron results boost chip stocks
]NEW YORK] Wall Street's S&P 500 and Nasdaq indexes opened near a record high on Thursday (Jun 26) as robust earnings from memory-chip maker Micron fuelled optimism around artificial intelligence while investors assessed a slew of economic data. The Dow Jones Industrial Average rose 101.6 points, or 0.24 per cent, at the open to 43,084.07. The S&P 500 rose 19.9 points, or 0.33 per cent, at the open to 6,112.09, while the Nasdaq Composite rose 88.6 points, or 0.44 per cent, to 20,062.187 at the opening bell. REUTERS
