US financial regulators are preparing the most significant easing of bank capital requirements in over a decade, according to a report published by the Financial Times.
The move would see a reduction in the Supplementary Leverage Ratio (SLR), a post-crisis measure introduced in 2014 to bolster the resilience of the banking system.
The SLR requires major US banks to maintain a specified amount of high-quality capital against their total exposure, including both on- and off-balance sheet items. The regulation was implemented in the aftermath of the 2008–09 financial crisis to ensure that institutions deemed systemically important would remain solvent during periods of market stress.
According to sources cited in the Financial Times, a formal proposal is expected by the summer. The planned changes could include the reintroduction of temporary exemptions for certain low-risk assets, such as US Treasury securities and deposits held with central banks. These exemptions were previously applied during the COVID-19 pandemic to ease funding pressures and support lending activity.
The current rules oblige the eight largest US banks — including JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo — to maintain Tier 1 capital equivalent to at least 5 per cent of their total leverage exposure. By contrast, similar institutions in Europe and China face lower thresholds, generally ranging from 3.5 to 4.25 per cent.
The banking sector has long argued that the US framework places domestic institutions at a competitive disadvantage, particularly when it comes to holding risk-free or near risk-free assets. Industry lobbyists have criticised the SLR for constraining market-making activities and hampering the functioning of critical financial markets, especially in periods of heightened volatility.
Analysts at Morgan Stanley observe that most large US banks are constrained by other regulatory metrics, such as risk-based capital requirements and Federal Reserve stress testing. According to their estimates, only State Street is currently limited by the SLR. They suggest that easing the leverage ratio would have limited effect on lending behaviour across the wider sector.
However, data from research group Autonomous indicates that reinstating the exemption for low-risk assets could release as much as $2 trillion in capital across the largest US banks. This would increase these institutions’ flexibility in deploying funds across various business lines or returning capital to shareholders through buybacks and dividends.
Despite the potential benefits to the banking sector, critics have warned that the proposed changes could increase systemic risk. Given ongoing uncertainty in global markets — driven by elevated interest rates, persistent inflation, and geopolitical tensions — some observers argue that now is not the time to loosen prudential safeguards.
There are also concerns that the US, by adopting a more lenient capital framework, could diverge from international standards. Such a shift might reduce alignment with the Basel III regime, under which leverage ratios serve as a non-risk-based backstop to complement traditional capital adequacy rules. A move in this direction could prompt regulators in the EU and UK to re-examine their own approaches to leverage and capital measurement.
Regulators involved in the current review include the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC). All three agencies would need to approve any final changes. While no formal timeline has been set, the proposals are expected to be published for consultation in the coming months.
The issue of leverage requirements has gained renewed prominence following recent stresses in the US regional banking sector. The collapse of several mid-sized banks in 2023–24 highlighted weaknesses in interest rate risk management and raised questions over supervisory frameworks. In response, regulators have pledged to recalibrate rules to balance financial stability with the need for efficient credit intermediation.
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