US regulators consider relaxing capital requirements for large banks, potentially freeing up hundreds of billions of dollars in capital space.

The three major financial regulatory agencies in the United States jointly proposed on Wednesday to lower the "enhanced supplementary leverage ratio" (eSLR) requirements for the largest systemically important banks in the United States. This move marks a key step in the Trump-led path of financial deregulation, sparking intense discussions among the markets and regulatory authorities. The Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) jointly proposed to adjust the current 5% eSLR standard for bank holding companies and the 6% standard for depositary institutions to a range of 3.5% to 4.25% based on risk conditions. The ratio measures the ratio of a bank's Tier 1 capital to its total leverage exposure, which is an important indicator of a bank's ability to absorb potential losses. Once the new rule is implemented, it will allow large banks including JPMorgan Chase and Goldman Sachs Group, Inc. to free up billions of dollars of capital. Morgan Stanley analyst Betsy Graseck estimates that large banks currently have around $166 billion in excess Tier 1 capital under the current leverage ratio requirements. If the new rule is implemented, it could release between $54 billion and $185 billion in capital. Although this relaxation is a significant boon for large banks, there is no internal consensus within the Federal Reserve. Federal Reserve Chair Jerome Powell stated in a release that given the changes in market structure since the financial crisis, the review of eSLR is "necessary." Newly appointed Federal Reserve Vice Chair for Supervision Lael Brainard also expressed support, calling it a "first step in balancing financial system stability with the resilience of the Treasury market." However, former Vice Chair for Supervision and current Board Governor Randal Quarles explicitly opposed the move, stating that it would weaken the risk resilience of systemically important banks. He and another Board Governor, Michelle Bowman, voted against it. It is worth noting that the proposal did not exclude U.S. Treasury securities from the calculation of eSLR as some banks had hoped. Large banks, including JPMorgan, have long called for the exclusion of Treasury securities to reduce capital usage. In response, Rob Nichols, CEO of the American Bankers Association, continued to call for further leverage ratio reforms, including excluding U.S. Treasury securities from the calculation of the supplementary leverage ratio and Tier 1 leverage ratio. The proposal has opened a 60-day public comment period, with the FDIC planning to hold a meeting on Thursday to further push for regulatory relaxation. OCC Acting Comptroller and Trump-appointed Rodney Hood has expressed support for the proposal.