US federal regulators are trying to soften bank requirements, loosening the amount of capital US banks must have, in what would be some of the biggest changes to bank restrictions since the 2008 financial crisis and a huge win for financial institutions.
On Thursday, US Federal Reserve officials are expected to vote to lower capital requirements – the funds they need to cover risky assets – for the biggest banks by 4.8%, which could free up capital for banks such as JPMorgan Chase, Goldman Sachs and Morgan Stanley.
Larger regional banks like PNC would see their requirements drop by 5.2%, while requirements banks with less than $100bn in assets would fall by 7.7%.
Capital requirements were increased after Wall Street’s risky bets triggered 2008 financial crisis. Elizabeth Warren, a Democratic senator and ranking member of the Senate banking committee, who helped create regulations after the 2008 financial crisis, said in a statement that the banking industry has been on “a multi-year lobbying assault to gut modest safeguards on Wall Street risk-taking”.
“Big banks can now declare mission accomplished. Today’s proposal grants their every wish,” Warren said. “It’ll mean bigger payouts for megabank shareholders and executives, less lending to small businesses and families, and a banking system even more prone to devastating crashes and taxpayer bailouts.”
The initiative has been spearheaded by Michelle Bowman, a Fed governor and the central bank’s vice-chair for supervision, who Donald Trump appointed last year.
In a speech at the Cato Institute last week, Bowman said the changes would provide “more efficient regulation and banks that are better positioned to support economic growth”.
“Following the 2008 financial crisis, regulators implemented reforms that substantially increased bank capital and strengthened financial system resilience,” Bowman said. “While these initial reforms were necessary, experience shows requirements that overly calibrate low-risk activities produce unintended consequences.”
The changes will be a major revision to Basel III, global banking regulations that were set up in the aftermath of the 2008 financial crisis.
After the collapse of Silicon Valley Bank (SVB) in 2023, US regulators were looking to tighten Basel III and make large banks hold more capital. But the major banks pushed back aggressively, arguing in 2024 that they helped stabilize the economy after SVB’s fall and that stronger regulations could lead more businesses to riskier lines of credit.
“It’s time to fight back,” Jamie Dimon, the CEO of JP Morgan, said at the time, adding that banks fear a “fight with their regulators, because they would just come and punish you more”.
The winds of regulation changed when Bowman replaced Michael Barr, a Fed governor who was the head of banking supervision under Joe Biden and was a staunch advocate for tighter capital requirements.
