The Federal Reserve is considering relaxing bank capital requirements, potentially freeing up hundreds of billions of dollars to support lending and repurchase activities.

US regulators are considering significant adjustments to the capital rules for large banks. The Federal Reserve on Thursday announced a comprehensive reform plan, aiming to relax capital requirements for Wall Street's large banks, potentially freeing up billions of dollars for purposes such as expanding lending, stock buybacks, and dividends. Randal Quarles, the Federal Reserve's Vice Chairman for Supervision, stated in a declaration that these adjustments will optimize the overall capital framework while maintaining the system's robustness under the new regime. The plan was jointly developed by the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) and will now enter a 90-day public consultation phase before being finalized. According to a memo released by the Federal Reserve, if the measures are eventually implemented, they will lead to a "modest decrease" in capital requirements for large banks overall. Regulators stated that this reform aims to promote a "harmonized and integrated" capital regulatory framework and, along with previously proposed relaxations on the supplementary leverage ratio (SLR) and stress test reforms, constitutes the most important round of bank capital rule adjustments since the 2008 financial crisis. In terms of specifics, part of the plan is related to the Basel III agreement. This international regulatory framework aims to prevent systemic risks in the banking system from reoccurring. Regulators anticipate that the new rules will result in a slight increase in capital requirements for global systemically important banks such as Citigroup, Bank of America Corp, and JPMorgan Chase, primarily through more accurately reflecting credit, market, and operational risks. However, compared to a proposal in 2023 that called for a significant increase in capital requirements, this reform direction is clearly shifting towards being more lenient. The previous proposal had once required banks to significantly increase their capital buffers, including setting higher capital requirements for mortgage operations, but was ultimately not implemented due to strong opposition from the banking industry. Additionally, the new plan will adjust the risk measurement methods for medium-sized banks, requiring them to uniformly adopt standardized approaches and phasing out the current "advanced approaches" to enhance regulatory consistency. At the same time, the Federal Reserve also proposed adjusting the additional capital requirements for global systemically important banks (G-SIBs) to be tied to changes in nominal GDP, with the adjustment granularity reduced from the original 50 basis points to 10 basis points, increasing flexibility and aligning with international standards. However, this series of relaxations has also sparked internal disagreements within the regulatory authorities. Daniel Tarullo, former Chief Banking Supervisor at the Federal Reserve, publicly opposed the plan, stating that a significant reduction in capital requirements is "neither necessary nor wise" and warning that it could weaken the resilience of the banking system and the American Financial Group, Inc. system.