The US government is reportedly gearing up to announce a rollback in banking regulations that will provide financial institutions with looser capital requirements.
President Trump’s administration is preparing to announce a reduction in the supplementary leverage ratio (SLR) for US banks’ capital reserves, the Financial Times (FT) reports, citing unnamed people familiar with the matter.
Regulators originally implemented the current SLR rules as part of Basel III in 2014, aiming to prevent a repeat of the 2008-2009 Global Financial Crisis. But some have argued that the regulations hold back the market and the financial industry.
Says Greg Baer, head of the Bank Policy Institute lobby group,
“Penalizing banks for holding low-risk assets like Treasuries undermines their ability to support market liquidity during times of stress when it is most needed… Regulators should act now rather than waiting for the next event.”
Federal Reserve Chair Jerome Powell also said earlier this year that he believed dialing back the SLR would “strongly” help support the US Treasury market.
“We need to work on Treasury market structure, and part of that answer can be, and I think will be, reducing the calibration of the supplemental leverage ratio.”
But others don’t share the same sentiment. Nicolas Véron, senior fellow at the Peterson Institute for International Economics, tells the FT that given the current risks for US banks and the role of the dollar and the direction of the economy, now is not the right time to relax capital standards.
Under Basel III, systemically important banks (SIBs) in the United States are required to maintain a supplementary leverage ratio (SLR) of 5% or more at the holding company level and 6% at the insured depository institution level. Meanwhile, many other developed countries adhere to the Basel III minimum SLR of 3%, though some jurisdictions have proposed or implemented slightly higher standards ranging from 3.5% to 4.25%
FT’s sources did not specify what precise SLR percentage regulators are aiming for, but lobbyists say they would like to bring America’s requirements more in line with international standards.
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