Move could free up billions but raises alarms among critics over systemic risk
Wall Street’s largest banks are poised for relief as US financial regulators advance plans to roll back a crisis-era bank capital rule that has long been a source of frustration for the country’s largest lenders.
The Federal Reserve on Wednesday voted 5-2 in favor of a proposal to lower the enhanced supplementary leverage ratio (eSLR) for the country’s biggest banks, a long-contested rule that firms argue restricts their ability to hold US Treasuries and function as intermediaries in the $29 trillion Treasury market.
Under the proposed changes, bank holding companies such as JPMorgan Chase, Goldman Sachs, and Bank of America would see their minimum capital ratio under the eSLR drop from 5% to a range between 3.5% and 4.5%. Their banking subsidiaries would see the threshold fall from 6% to the same 3.5%–4.5% range.
The announcement confirms earlier reporting by Bloomberg, which cited sources familiar with ongoing discussions at the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), and the Office of the Comptroller of the Currency (OCC).
The change marks a major win for Wall Street, with big banks long arguing that the leverage ratio in its current form discouraged them from holding Treasuries, thus constraining liquidity in critical parts of the market. The proposal is a continuation of efforts started under Trump’s administration, which in 2018 introduced similar reforms aimed at tailoring the rule for US global systemically important banks (G-SIBs).
Rather than excluding certain low-risk assets like Treasuries from the calculation, the proposal would revise the ratio itself. However, regulators are expected to seek public comment on whether Treasuries should be excluded in future rulemaking, according to sources cited by Bloomberg.
The push for change comes shortly after Michelle Bowman, a Trump appointee, assumed her new role as vice chair for supervision at the Federal Reserve, replacing Michael Barr, who strongly opposed the rollback.
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“Taken together, these changes would significantly increase the risk that a G-SIB bank would fail, orderly resolution would not be possible, and the Deposit Insurance Fund would incur higher losses,” Barr warned prior to his departure.
The proposal has also drawn fire from progressive lawmakers. Senator Elizabeth Warren, a Democrat from Massachusetts, has called the leverage rule a “critical safeguard” that helps ensure financial stability. In a letter to regulators, she voiced concern that loosening the rule could exacerbate economic risks.
The $210 billion reduction in bank-level capital projected by the proposal has stoked fears that easing the rule could increase systemic risk. However, supporters argue the change would free up balance sheets, enabling banks to better manage liquidity and support trading in Treasuries without undermining core capital strength.
The proposal now enters a public comment period, and its final version could still undergo revisions.
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