U.S. regulatory agencies are considering relaxing capital rules, encouraging Wall Street giants to "open the floodgates for lending."

US regulators plan to introduce a series of new capital requirements to encourage Wall Street big banks and medium-sized counterparts to increase lending. According to sources, officials from the Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency are expected to announce the proposals as early as next week. They stated that the plan will include three core capital-related measures. One plan is to revise the Basel III capital proposals for iconic US banks. Michelle Bowman, vice chair for supervision at the Federal Reserve, had previously stated that the revised version of the plan would be released by the end of March. Sources say another measure will allow medium-sized banks to calculate capital using a standardized approach, addressing the issue of smaller institutions having to bear the costs of complex metrics used by Wall Street giants. The Federal Reserve will also introduce a plan to adjust additional capital requirements for US global systemically important banks based on changes in nominal GDP. This adjustment will make the capital buffers of large banks more in line with international standards. Several banks, including JPMorgan Chase, have criticized the existing fixed threshold mechanism, arguing that banks are deemed to be at higher risk simply because they expand in sync with the overall economy. Regulators plan to present this plan as part of the harmonization of capital rules. If implemented, these proposals, along with measures to relax the Enhanced Supplementary Leverage Ratio and reform stress testing rules, will be one of the most significant adjustments to Bank of America Corp's capital rules since the 2008 financial crisis. Spokespersons for the Federal Reserve and Federal Deposit Insurance Corporation declined to comment, and the Office of the Comptroller of the Currency did not respond to interview requests. Basel III According to previous reports, the Federal Reserve last year proposed a version of Basel III with significantly smaller increases in capital for Wall Street banks compared to the proposal that was not finalized for 2023. Some officials estimated at the time that the revised plan could lead to an overall capital increase of about 3% to 7% for some large banks. Sources say that this plan, which will be open for public comment, is expected to maintain this range of increases for banks with substantial trading books and emphasizes that the proposal is not finalized yet, and the estimates may still be adjusted. However, sources also indicated that when this requirement is combined with other proposed capital adjustments such as the additional fees for global systemically important banks and stress tests, the overall net capital requirements calculated by business lines for banks with large trading books may actually decrease. For all banks, capital changes will depend on their asset structures, resulting in different impacts. The long-awaited measures being developed by regulators are expected to be welcomed by Wall Street banks. Previously, the industry vehemently opposed the final proposal known as "Basel III" during the Biden administration. Critics argued that significantly higher capital requirements would increase borrowing costs and weaken Bank of America Corp's competitiveness against international peers, while supporters stated that this move is crucial for financial stability. Bowman has stated that a key objective of the revised plan is to boost mortgage lending by aligning capital requirements more closely with actual risks and reversing the trend of mortgage business shifting to non-bank institutions. This concern has also prompted Bowman and other regulators to relax some rules introduced after the crisis. The banking industry had complained that excessive regulation was marginalizing them as the private credit industry expanded rapidly. Bowman also emphasized that banks need to have enough "flexibility" to remain competitive.