15-05-2025
U.S. preparing to relax big-bank capital rules
U.S. regulators are preparing to ease key financial requirements for Wall Street — a win for the industry's largest banks, which have long pushed for looser restrictions that advance Trump administration goals to ease regulations first put in place in response to the financial crisis.
The Federal Reserve and two other agencies are expected as soon as next month to propose easing requirements for certain financial buffers that banks use to absorb losses. It would mark a significant step to ease capital standards for the biggest banks.
Separately, the Fed has hired a trio of top banking industry officials tapped by Michelle Bowman, a Republican Fed governor whom President Donald Trump elevated earlier this year to serve as the central bank's top Wall Street overseer. The hirings offer an early indication of Bowman's regulatory priorities, which tilt toward a more industry-friendly approach. The new staff are also expected to bring expertise that some Fed watchers believe has been lacking inside the central bank.
The new advisers are Francisco Covas of the Bank Policy Institute, a bank advocacy group, who formerly worked at the Fed; Aleksandra Wells of Goldman Sachs, who previously advised Bowman at the Fed; and Randall Guynn, a top banking lawyer at Davis Polk & Wardwell. Together, they are expected to help overhaul the Fed's approach to the way it regulates and supervises Wall Street.
Bowman has been outspoken in arguing that the Fed's rules are unduly complex and has pushed for more in-depth review of the supervisory failures that led to the collapse of Silicon Valley Bank in 2023.
In an internal email to staff last week, Bowman wrote that 'Aleks and Francisco will advise me as they work closely with the Supervision and Policy groups. Randy will leverage his extensive experience to help me assess opportunities to enhance the efficiency and effectiveness of the S & R function,' referring to the Fed's powerful Supervision and Regulation division.
Work on the coming proposal to ease big-bank capital requirements began well before the trio of new staff were hired to join the Fed. The work has been endorsed by Fed Chair Jerome H. Powell, as well as the Trump administration, which has made deregulation a key economic goal.
Treasury Secretary Scott Bessent, speaking to lawmakers last week, characterized easing bank capital rules as a 'high priority' for U.S. banking regulators.
Currently, the highly technical rules in question don't distinguish between risky loans and ultrasafe assets banks hold such as U.S. Treasury securities. Banks and some regulators say the requirements have had unintended consequences, forcing firms to hold more capital or reduce their holdings of low-risk assets.
Critics say this has inadvertently harmed the functioning of the nearly $30 trillion market for U.S. Treasury bonds, the bedrock of the global financial system that plays a critical role in financing U.S. budget deficits. They say banks that are required to manage to the ratio are inadvertently discouraged from buying or selling U.S. treasury securities in a way that could make the treasury market dysfunctional, particularly in periods of market tumult.
Relaxing the requirements could theoretically prod more big banks to buy more Treasurys, which could have eased some of the upward pressure on bond yields that rattled markets in recent weeks amid Trump's trade wars and doubts about the U.S. status as a global safe haven.
Banks say relief is important, since the Treasury market is forecast to grow dramatically over the next 10 years, with government deficits and the rising cost of interest payments pushing the market to around $50 trillion, according to the Congressional Budget Office.
Outdated banking rules are 'negatively impacting liquidity in the Treasury market, raising U.S. borrowing costs, and contributing to dysfunction in financial markets during times of stress,' said Kevin Fromer, CEO of the Financial Services Forum, representing eight of the biggest financial institutions. 'The solutions are understood. We expect the issue will be addressed soon.'
The effort is sure to generate pushback from congressional Democrats, including Sen. Elizabeth Warren (D-Massachusetts), who pushed for tougher rules for banks in the aftermath of the financial crisis.
Reducing the requirements would grant Wall Street's first wish on their lobbying list, juicing shareholder payouts and executive bonuses while reducing money available for absorbing losses and lending to small businesses and households, she said in a statement.
