Federal Reserve Proposes Rule to Ease Capital Requirements for Big Wall Street Banks

The Federal Reserve has proposed easing a key capital rule known as the enhanced supplementary leverage ratio, which regulates the quantity and quality of capital banks should keep on their balance sheets. This move has drawn dissent from at least two officials concerned about potential risks.

The rule was established post-financial crisis to ensure stability in large banks, but recent concerns over bank reserves and Treasury market liquidity have led to calls for relaxing the requirements. The Fed will vote on the new rules on Wednesday.

If approved, the proposal would reduce the top-tier capital big banks must hold by 1.4%, or around $13 billion for holding companies. Subsidiaries would see a larger drop of $210 billion, which would still be held by the parent bank. The aim is to lower capital requirements to a range of 3.5% to 4.5% from the current 5%.

The plan aims to allow banks to take on more lower-risk assets like Treasurys, treating them similarly to high-yield bonds for capital purposes. The goal is to use capital requirements as a safety net rather than a restriction on activity.

While some officials support the changes, others oppose them, citing concerns about the effectiveness of the proposal in times of stress and its impact on Treasury market intermediation.

The new regulations align with global Basel standards for banks.

According to the source: CNBC.