US Regulators Slash Capital Rules for Biggest Banks Amid Fierce Disagreement
US banking regulators have finalised a controversial rule reducing capital requirements for the country’s largest financial institutions, marking one of the most significant shifts in post-crisis oversight in recent years.
The Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and the Federal Reserve approved the measure on Tuesday, trimming tier 1 capital requirements for global systemically important banks by less than 2 percent, or roughly 13 billion dollars in aggregate.
The move will have an even greater impact at the subsidiary level. According to an FDIC memo, depository institutions owned by GSIBs will see their required holdings fall by an average of 28 percent.
The reductions mirror, but in some respects exceed, a proposal issued by the Federal Reserve in June.
At the heart of the reform is the enhanced supplementary leverage ratio, a key yardstick for measuring capital relative to total assets. Under the new rule, the ratio for holding companies will fall to 3 percent plus half of each firm’s Method 1 surcharge, down from the current 5 percent.
For bank subsidiaries, the requirement drops from 6 percent to 4 percent. Banks may adopt the revised standards early from January, though formal implementation begins in April.
Supporters argue that the revisions bring the leverage ratio back to its intended purpose - acting as a backstop rather than constraining bank activity in low-risk areas such as Treasury market operations.
FDIC acting chair Travis Hill said the changes would ensure the measure functions more appropriately alongside risk-based capital requirements.
The rule also transforms the ratio for depository institutions from a prompt corrective action threshold to a buffer, preventing any change to a bank’s “well capitalised” status based solely on the metric.
While the FDIC and OCC voted unanimously in favour, the Federal Reserve’s approval came with notable dissent.
Governor Lisa Cook warned that reducing capital at the subsidiary level could undermine solvency during periods of stress and erode protections for the deposit insurance fund. She cautioned that individually modest adjustments could combine to create large and unintended reductions in sector-wide resilience.
A contrasting view came from Governor Stephen Miran, who supported the measure but urged regulators to go further by excluding Treasury and repo trading books from the leverage ratio calculations, arguing that such a move would shield a critical market from disruption.
The political reaction was swift. Senator Elizabeth Warren criticised the development, calling it a dangerous step that could pave the way for future bailouts.
She reiterated concerns raised in an August letter, in which she and ten Democratic colleagues pressed regulators for stronger data and justification before lowering capital requirements.
In a separate move on Tuesday, regulators proposed reducing the community bank leverage ratio from 9 percent to 8 percent and extending the compliance grace period for eligible firms.
The agencies intend to finalise the rule next summer, with implementation as early as October.
However, the nonprofit group Better Markets argued that the combined effect of both actions disadvantages smaller lenders.
Its director of economic growth and financial stability, Phillip Basil, said the regulators had effectively eased requirements for the largest banks while only modestly altering the rules for community institutions, worsening an already uneven competitive landscape.
As with the eSLR rule, the community bank proposal also faced internal objection, signalling that capital reform remains one of the most divisive issues in the regulatory agenda.