As President Donald Trump’s regulators revamp bank rules, big lenders expect their capital requirements could fall, in a stunning victory for the industry which faced a big hike under former President Joe Biden, according to senior industry executives.
Aiming to cut red tape that Trump’s agency picks say is hurting the U.S. economy, they are working on the most sweeping overhaul of U.S. capital rules since the global financial crisis of 2008.
In addition to narrowing the “Basel Endgame” capital hikes which sparked unprecedented pushback from Wall Street banks, the Fed plans to reduce a capital surcharge levied on risky global banks, shrink a key leverage constraint, and overhaul annual tests that gauge whether lenders can withstand an economic shock.
The country’s largest lenders, which have lobbied hard for the long-sought review, are optimistic that the changes combined will result in their capital levels remaining flat or falling, said six industry and regulatory sources, including three top bankers.
That expected outcome, reported here for the first time, marks a dramatic turnaround for the industry which faced a 19% hike in 2023 under the draft Basel capital rules which proposed changes to how big banks gauge lending and trading risks.
While the Fed last September said that hike would be halved, the plan was never finalized and died with Trump’s election.
Big banks have long complained that capital rules are excessive and poorly calibrated, and that some of that cash could better serve the economy through lending. They also argue that they weathered the COVID-19 economic shock just fine.
Critics say efforts to chip away at the capital regime are dangerous, and could leave the industry vulnerable at a time when the outlook for the U.S. economy is growing cloudy.
With big banks including JPMorgan Chase, Bank of America and Citigroup together holding around $1 trillion in capital, even a small dip could free up billions of dollars for lending, trading, dividends and share buybacks.
“You’re going to see here the most aggressive streamlining or easing of bank regulations that we’ve seen certainly since Dodd-Frank and probably sometime before that,” said Ian Katz, managing director at Capital Alpha Partners, referring to the landmark 2010 post-crisis law that overhauled bank rules.
A spokesperson for the Fed’s new regulatory chief, Michelle Bowman, who is leading the overhaul, declined to comment. Bowman said last week that she wants the rules to “work well together” and did not necessarily expect capital to fall. Regulators will unveil a new Basel draft by early 2026, she added.
The Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation, which are also working on the Basel draft, also declined to comment.
“America’s largest banks are the strongest in the world,” said Amanda Eversole, CEO of the Financial Services Forum which represents the country’s eight biggest banks. “Modernizing capital rules will let them put that strength to work – fueling growth for consumers, small businesses, and the economy.”
‘EXTREMELY CONSEQUENTIAL’
The sources, who declined to be identified discussing confidential regulatory issues, said they expect the new Basel draft to be broadly “capital-neutral” at a minimum. That means it would neither increase nor decrease system-wide capital, but change how it is distributed.
Trump’s pick for FDIC chair, Travis Hill, in January said “roughly” capital-neutral would be a “prudent starting point.”
To get there, regulators are expected to abandon a “dual stack” that would have required banks to comply with the stricter of two methods for measuring their risk capital which penalized banks with large trading businesses, and to ease a requirement to put capital aside for operational risks, like cyberattacks or lawsuits, two of the people said.
Capital reductions could then come as the Fed updates the “GSIB” surcharge to better account for economic growth, and as regulators tailor the enhanced supplementary leverage ratio, a risk-blind capital safety net, to each individual bank, three of the sources said.
After the industry sued the Fed in December, the central bank is also working to make its stress tests, which partly determine big lenders’ capital buffers, more transparent, likely helping them to optimize their results.
Two of the sources cautioned, however, that the regulatory discussions are ongoing and that Democrats on the Fed board may oppose changes that are too favorable to the industry.
Based on an analysis of industry materials, Washington-based group Better Markets, which advocates for tougher financial rules, estimates that banking system capital could fall by $200 billion if the industry secures all the relief it has been pushing for.
“It’s huge and extremely consequential,” said Phillip Basil, director of economic growth and financial stability at Better Markets. “It’s going to take a lot less to bring down a big bank.”
Additional reporting by Saeed Azhar
—Lananh Nguyen, Nupur Anand, Pete Schroeder and Tatiana Bautzer, Reuters