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Business Times
25-06-2025
- Business
- Business Times
US Federal Reserve releases plan to relax key bank capital rule
[WASHINGTON] The US Federal Reserve unveiled plans to roll back an important capital rule that big banks have said limits their ability to hold more Treasuries and act as intermediaries in the US$29 trillion market. The Fed board voted 5-2 on Wednesday (Jun 25) to propose changes to what's known as the enhanced supplementary leverage ratio (eSLR), which applies to the largest US banks such as Bank of America, JPMorgan Chase and Goldman Sachs. The revisions would reduce holding companies' capital requirement under the ratio to a range of 3.5 to 4.5 per cent, from the current 5 per cent. Their banking subsidiaries would see that requirement lowered to the same range from 6 per cent. 'The proposal will help to build resilience in US Treasury markets, reducing the likelihood of market dysfunction and the need for the Federal Reserve to intervene in a future stress event,' Michelle Bowman, the central bank's new vice-chair for supervision, said in a statement accompanying the draft rule. 'We should be proactive in addressing the unintended consequences of bank regulation.' The Fed's announcement confirmed proposed changes to the rule first reported by Bloomberg News last week. Bowman's predecessor, governor Michael Barr, objected to the plan, which he said would weaken the eSLR and reduce bank-level capital by US$210 billion for the US global systemically important banks. '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 said. Governor Adriana Kugler joined Barr in objecting to the draft rule. Both said it's unlikely to help the Treasury market, especially in times of stress. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Wednesday's proposal is a partial win for the banks, which had called for the Fed to exclude certain assets such as Treasuries from the ratio calculation. The industry, which has pushed for lighter regulation under the Trump administration, is likely to fight for the carve-out during the planned 60-day public comment period. The Fed is asking for weigh-in on the exclusion. 'This is an important question that deserves thoughtful consideration,' said Greg Baer, president of the Washington-based Bank Policy Institute, referring to the carve-out. The leverage ratio, which went into effect in 2018 and treats all assets equally, was meant as a backstop to other capital rules that give different loans and bonds varied weightings based on their perceived risk. Policymakers have said the eSLR has become stricter for some banks than those risk-weighted regulations, meaning it could constrain their ability to add to Treasury holdings in stressful times. Critics of changing the eSLR rules question whether banks will actually use the increased flexibility to buy Treasuries. 'The challenge for regulators is how they can address the narrow issue of ensuring banks can support the Treasury market without jeopardising financial stability or allowing banks to distribute the excess capital to their shareholders,' said Graham Steele, a Fed alumnus who served as a Biden-era Treasury official. He said regulators should consider more targeted solutions that could mitigate issues in the market. The Federal Deposit Insurance Corporation will follow the Fed with its own meeting on Thursday. Rodney Hood, acting head of the Office of the Comptroller of the Currency, said on Wednesday that he supported the planned revisions to the rule. The Fed's staff said the proposal would reduce the aggregate capital requirements for the eight big banks by US$13 billion. Although more than US$200 billion of capital would be freed up for the firms' banking subsidiaries, the restrictions at the holding company level would prevent that from being paid out to shareholders, the agency said. Under the Fed's proposal, total loss-absorbing capacity (TLAC) requirements for big banks would decline by 5 per cent. TLAC forces lenders to hold a certain amount of debt, at the holding-company level, that can be converted to equity under stress. The plan would lower firms' long-term debt requirements by 16 per cent, the central bank said. The Fed temporarily relaxed the leverage ratios in 2020 in response to the economic and financial turmoil triggered by the Covid-19 crisis, with the goal of freeing up lending to consumers and businesses. The exemption, which expired in March 2021, allowed banks to hold more Treasuries without those assets affecting their leverage ratios. In April, the Trump administration's tariffs rattled the markets, increasing focus on the SLR standards. 'We do not know exactly what circumstances may lead to a future stress event or how it will manifest, and continuing to impose unwarranted limits on dealers' intermediation capacity could exacerbate a future stress event in this critical market,' Bowman said in a speech earlier this week. 'But we do know that these events have raised concerns about the resilience of US Treasury markets.' Fed chair Jerome Powell has supported revisions to SLR standards to help bolster banks' roles as intermediaries in the Treasury market. 'When the leverage ratio is binding, it discourages banks from undertaking low-margin, fairly safe activities, such as mediation in Treasury markets,' he told members of the House Financial Services Committee on Tuesday. Some of the sharpest criticism of the Fed's proposal to reduce the enhanced version of the SLR has come from Senator Elizabeth Warren, a Massachusetts Democrat who recently wrote a letter to bank regulators. She called the leverage rule a 'critical safeguard' that promotes financial stability and warned that the economy already faces risks from US President Donald Trump's tariff policies. BLOOMBERG
Boston Globe
24-06-2025
- Business
- Boston Globe
Elizabeth Warren blasts regulators' potential bank leverage-rule changes
Advertisement Warren said the economy already faces risks from President Donald Trump's 'chaotic tariff policies.' In April, Trump's tariffs rattled the markets, sharpening investors' focus on the standards. The Fed received the letter and plans to respond, according to a spokesperson. Representatives for the OCC and FDIC declined to comment. The plan is expected to lower a bank holding company's capital requirement under the eSLR to a range of 3.5 percent to 4.5 percent, down from the current 5 percent. The firms' banking subsidiaries would also likely see their requirement reduced to the same range, down from the current 6 percent. The Fed's plan would ask for comments on whether the agencies should carve out Treasuries and other assets from the leverage ratio calculation. Advertisement Bowman said earlier this month that leverage ratios are intended to act as a 'backstop' to risk-based capital requirements and when it becomes the binding constraint at an excessive level it can lead to market distortions. Fed Chair Jerome Powell has supported possible revisions to the supplementary leverage ratio standards and in February told lawmakers that he had been 'somewhat concerned about the levels of liquidity in the Treasury market' for a long time. Warren said Treasuries are not completely free of risk and banks should not be permitted to finance those investments with unlimited leverage. 'Banks' own actions, and a clear record of evidence, demonstrate that concerns over a strong eSLR are more related to big banks' ability to make payouts to shareholders and executives than their ability to act as a source of strength to the economy during periods of stress,' the Massachusetts Democrat said.
Yahoo
24-06-2025
- Business
- Yahoo
Powell Says Key Capital Rule Change May Aid Treasuries Market
(Bloomberg) -- Federal Reserve Chair Jerome Powell said Tuesday that potential changes to a key capital buffer should bolster banks' roles as intermediaries in the US Treasuries market. Bezos Wedding Draws Protests, Soul-Searching Over Tourism in Venice US State Budget Wounds Intensify From Trump, DOGE Policy Shifts Commuters Are Caught in Johannesburg's Taxi Feuds as Transit Lags US Renters Face Storm of Rising Costs 'When the leverage ratio is binding, it discourages banks from undertaking low-margin, fairly safe activities such as mediation in the Treasury markets,' Powell said at a House Financial Services Committee hearing. 'This should encourage more mediation.' The Fed and other banking agencies are poised to unveil a plan this week to decrease what's called the enhanced supplementary leverage ratio, which requires banks to hold a certain amount of capital relative to their assets. The proposal would reduce the buffer by as much as 1.5 percentage points for the largest lenders, Bloomberg News reported earlier this month, and would look to change the ratio instead of excluding specific assets like Treasuries, as some observers had predicted. It would look to lower a bank-holding company's capital requirement under the eSLR to a range of 3.5% to 4.5%, down from the current 5%, according to people briefed on the discussions who asked not to be identified discussing nonpublic information. The firms' banking subsidiaries would also likely see their requirement reduced to the same range from the current 6%, the people said. Powell told lawmakers on Tuesday that the proposal would ask the public to weigh in on whether the agencies should exclude certain assets from the leverage ratio calculation. The Fed chair added that he has supported leverage ratio changes for a long time. The banking industry and some regulators have said the current capital rule can limit lenders' trading in the $29 trillion Treasuries market during times of stress, as those securities are treated in line with much riskier assets. But others argue that easing the rule could lead to instability in the financial system. The Fed announced last week that its board will meet on Wednesday to discuss the plan. The Federal Deposit Insurance Corp. will hold its meeting Thursday about changes to the eSLR — which went into effect in 2018. Luxury Counterfeiters Keep Outsmarting the Makers of $10,000 Handbags Ken Griffin on Trump, Harvard and Why Novice Investors Won't Beat the Pros Is Mark Cuban the Loudmouth Billionaire that Democrats Need for 2028? Inside Gap's Last-Ditch, Tariff-Addled Turnaround Push Can 'MAMUWT' Be to Musk What 'TACO' Is to Trump? ©2025 Bloomberg L.P. Sign in to access your portfolio
Yahoo
18-06-2025
- Business
- Yahoo
US Plans to Ease Capital Rule Limiting Banks Treasury Trades
(Bloomberg) -- The top US bank regulators plan to reduce a key capital buffer by up to 1.5 percentage points for the biggest lenders after concerns that it constrained their trading in the $29 trillion Treasuries market. Security Concerns Hit Some of the World's 'Most Livable Cities' JFK AirTrain Cuts Fares 50% This Summer to Lure Riders Off Roads How E-Scooters Conquered (Most of) Europe Taser-Maker Axon Triggers a NIMBY Backlash in its Hometown The Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency are focusing on what's known as the enhanced supplementary leverage ratio, according to people briefed on the discussions. This rule applies to the largest US banks, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley. The proposal would lower a bank holding company's capital requirement under the eSLR to a range of 3.5% to 4.5%, down from the current 5%, according to the people, who didn't want to be identified discussing nonpublic information. The firms' banking subsidiaries would also likely see their requirement reduced to the same range, down from the current 6%, the people said. The revisions resemble those from 2018, when President Donald Trump's regulators sought to 'tailor' the eSLR calculation that applied to US global systemically important banks, according to the people familiar with the matter. The people said the proposal's language could still change. The KBW Bank Index rose on Wednesday after Bloomberg's report and was up 2% at 1:13 p.m. in New York. Shares of JPMorgan climbed as much as 3%, while Wells Fargo rose as much as 2.9%. The proposal will look to change the overall ratio rather than exclude specific assets like Treasuries, as some observers had predicted. Still, it's expected to ask for public comment on whether the agencies should carve out Treasuries from the calculation, the people said. The Fed said Tuesday it plans to meet on June 25 to discuss the plan. On Wednesday, the FDIC said it will hold a June 26 meeting on the enhanced version of the SLR — which went into effect in 2018. Representatives for the Fed, FDIC and OCC declined to comment. Fed Chair Jerome Powell and other officials supported possible revisions to the supplementary leverage ratio standards in a bid to bolster banks' roles as intermediaries in the market. In February, he told the House Financial Services Committee that he had been 'somewhat concerned about the levels of liquidity in the Treasury market' for a long time. In April, President Donald Trump's tariffs rattled the markets, sharpening investors' focus on the SLR standards. The industry has said the rule, which requires large lenders to hold capital against their investments in Treasuries, crimps their ability to add to those securities in times of volatility, as they are treated in line with much riskier assets. The SLR's applicability to Treasuries was suspended during the Covid crisis, but it has since been reinstated. Leverage ratios are intended to act as a 'backstop' to risk-based capital requirements, Michelle Bowman, the Fed's vice chair for supervision, said earlier this month. 'When leverage ratios become the binding capital constraint at an excessive level, they can create market distortions,' she added. Treasury Secretary Scott Bessent has pointed to estimates that tweaking the rule could reduce Treasury yields by tens of basis points. Still, it's unclear whether easing the leverage ratio would encourage banks to buy more Treasuries, said Jeremy Kress, a former Fed bank-policy attorney who now teaches business law at the University of Michigan. 'When regulators temporarily excluded Treasuries from the leverage ratio in 2020, most banks chose not to take advantage of this exclusion because doing so would have triggered restrictions on their ability to pay dividends and buy back shares,' Kress said. 'This experience suggests that if banks get additional balance sheet capacity from leverage ratio changes, they're more likely to use it for capital distributions to shareholders rather than for Treasury market intermediation.' Graham Steele, another Fed alumnus who served as a Biden-era Treasury official, says there are more targeted solutions that could help the Treasury market issues. 'Unfortunately, the deregulation being contemplated won't remedy the situation; it will just make the financial system more fragile,' Steele said. --With assistance from Christopher Anstey. (Updates with share prices in fifth paragraph.) Ken Griffin on Trump, Harvard and Why Novice Investors Won't Beat the Pros Is Mark Cuban the Loudmouth Billionaire that Democrats Need for 2028? How a Tiny Middleman Could Access Two-Factor Login Codes From Tech Giants American Mid: Hampton Inn's Good-Enough Formula for World Domination The Spying Scandal Rocking the World of HR Software ©2025 Bloomberg L.P. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Mint
18-06-2025
- Business
- Mint
US Plans to Ease Capital Rule Limiting Banks' Treasury Trades
(Bloomberg) -- The top US bank regulators plan to reduce a key capital buffer by up to 1.5 percentage points for the biggest lenders after concerns that it constrained their trading in the $29 trillion Treasuries market. The Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency are focusing on what's known as the enhanced supplementary leverage ratio, according to people briefed on the discussions. This rule applies to the largest US banks, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley. The proposal would lower a bank holding company's capital requirement under the eSLR to a range of 3.5% to 4.5%, down from the current 5%, according to the people, who didn't want to be identified discussing nonpublic information. The firms' banking subsidiaries would also likely see their requirement reduced to the same range, down from the current 6%, the people said. The revisions resemble those from 2018, when President Donald Trump's regulators sought to 'tailor' the eSLR calculation that applied to US global systemically important banks, according to the people familiar with the matter. The people said the proposal's language could still change. The proposal will look to change the overall ratio rather than exclude specific assets like Treasuries, as some observers had predicted. Still, it's expected to ask for public comment on whether the agencies should carve out Treasuries from the calculation, the people said. The Fed said on Tuesday that it plans to meet on June 25 to discuss the plan. The other regulators hadn't yet announced their agendas on the enhanced version of the SLR. Representatives for the Fed, FDIC and OCC declined to comment. Fed Chair Jerome Powell and other officials supported possible revisions to the supplementary leverage ratio standards in a bid to bolster banks' roles as intermediaries in the market. In February, he told the House Financial Services Committee that he had been 'somewhat concerned about the levels of liquidity in the Treasury market' for a long time. In April, President Donald Trump's tariffs rattled the markets, sharpening investors' focus on the SLR standards. The industry has said the rule, which requires large lenders to hold capital against their investments in Treasuries, crimps their ability to add to those securities in times of volatility, as they are treated in line with much riskier assets. The SLR's applicability to Treasuries was suspended during the Covid crisis, but it has since been reinstated. Leverage ratios are intended to act as a 'backstop' to risk-based capital requirements, Michelle Bowman, the Fed's vice chair for supervision, said earlier this month. 'When leverage ratios become the binding capital constraint at an excessive level, they can create market distortions,' she added. Treasury Secretary Scott Bessent has pointed to estimates that tweaking the rule could reduce Treasury yields by tens of basis points. Still, it's unclear whether easing the leverage ratio would encourage banks to buy more Treasuries, said Jeremy Kress, a former Fed bank-policy attorney who now teaches business law at the University of Michigan. 'When regulators temporarily excluded Treasuries from the leverage ratio in 2020, most banks chose not to take advantage of this exclusion because doing so would have triggered restrictions on their ability to pay dividends and buy back shares,' Kress said. 'This experience suggests that if banks get additional balance sheet capacity from leverage ratio changes, they're more likely to use it for capital distributions to shareholders rather than for Treasury market intermediation.' Graham Steele, another Fed alumnus who served as a Biden-era Treasury official, says there are more targeted solutions that could help the Treasury market issues. 'Unfortunately, the deregulation being contemplated won't remedy the situation; it will just make the financial system more fragile,' Steele said. --With assistance from Christopher Anstey. More stories like this are available on
