According to Morgan Stanley, Wall Street's trading banks such as Goldman Sachs Group, Inc. (GS.US) stand to benefit the most from the Federal Reserve's plan to "loosen up."

According to recent reports, the Federal Reserve has presented a revised proposal for the final rules of the Basel III agreement to other US regulatory agencies, which will significantly relax the capital requirements for large Wall Street banks. Some officials estimate that the new proposal will decrease the overall capital requirements for most large banks to between 3% and 7%, a number much lower than the 19% increase proposed for 2023 and lower than the 9% proposed in last year's compromise version. Banks with larger trading portfolios may see even smaller increases or even decreases in capital requirements. The final rules of the Basel III agreement aim to clarify how much capital banks need to reserve to withstand an economic downturn. Wall Street banks strongly opposed the original proposal for the 2023 Basel III final rules, with critics arguing that significantly increasing capital requirements would raise loan costs and weaken Bank of America Corp's position relative to international competitors. However, supporters emphasize that this is crucial for financial stability. Reports indicate that the Federal Reserve plans to announce the new proposal as early as the first quarter of 2026, led by Michelle Bowman, the Vice Chair for Supervision at the Federal Reserve appointed earlier this year by Trump. In a recent research report, Morgan Stanley stated that the announcement of the new proposal for the final rules of the Basel III agreement may come close to the first quarter of 2026. This also suggests that the final rules for the Supplementary Leverage Ratio (SLR) and the Global Systemically Important Banks (GSIB) surcharge may progress simultaneously by the end of 2025. If the final rules of the Basel III agreement are re-proposed in the first quarter of 2026, with a 90-day public comment period until the end of the second quarter of 2026, Morgan Stanley predicts that the final rules could be implemented by the fourth quarter of 2026. At that time, banks will release updated capital requirements and buffer arrangements for full optimization of capital allocation in their models by 2030. Morgan Stanley pointed out that as of the second quarter of 2025, large banks collectively had $157 billion in excess capital. Roughly calculating, even with a 7% increase in capital requirements, large banks would still retain at least $146 billion in excess capital. With further adjustments to capital rules (such as the GSIB surcharge, SLR, and transparency in stress tests), the capital adequacy of banks may continue to improve. Morgan Stanley added that the reduction in capital requirements is most favorable for banks with large trading portfolios, such as Goldman Sachs Group, Inc. (GS.US). For investors in agency mortgage-backed securities, a lower-than-expected reduction in capital relief may pose a slight negative impact on bank demand, but it may be a slight positive for the Government National Mortgage Association (Ginnie Mae) and Fannie Mae. However, more importantly, the clarity of regulatory rules and the certainty brought about by their final implementation will be crucial. Morgan Stanley stated that the detailed content of the new proposal still needs to be awaited. Morgan Stanley stated that if the final rules of the Basel III agreement and other changes in capital regulations can be clearly implemented, it will be a positive signal and help banks optimize their excess capital allocations more quickly. If the reports are accurate, the proposed 3% to 7% increase in capital requirements is slightly higher than the bank's previous estimate of a "capital-neutral" proposal, but the specific details may still change during the rule-making and public comment period.