US banks to unlock USD 2.6 tn in lending capacity from deregulation push

US banks are poised for a sweeping relaxation of capital regulations that could unlock USD 2.6 tn in lending capacity, the Financial Times reports, citing an Alvarez & Marsal report. The consultancy estimates the move will free up USD 140 bn in capital for Wall Street lenders, marking a significant shift toward deregulation under President Donald Trump’s administration.

What to expect: The push to ease banking rules — led by Federal Reserve vice-chair Michelle Bowman — will include reducing requirements for high-quality capital, adjusting extra buffers for major banks, and overhauling annual stress tests. Alvarez & Marsal forecasts these changes to cut common equity tier one requirements by 14%, which could boost earnings per share by 35%.

The rationale: Washington’s renewed bank-friendly stance reverses many of the post-2008 crisis safeguards. The loosening of rules aims to strengthen large US banks, enabling them to redirect lending capacity toward sectors driving the US investment boom, such as AI, data centres, and energy infrastructure, while returning more capital to shareholders, Oliver Wyman’s Huw van Steenis told the FT.

The overhaul is a significant reversal for major banks, which had been facing a proposed 19% hike in 2023 under the “Basel Endgame” rules drafted during the Biden administration, Reuters reports. That plan, which had sparked unprecedented pushback from Wall Street, was never finalized and was abandoned following President Donald Trump’s election.

JPMorgan leads the pack: JPMorgan Chase is set to gain the most from the rule changes, with USD 39 bn in freed-up capital. Its earnings per share could rise by 31%, while return on equity may increase by 7%, according to the report.

Not everyone is following suit: While the UK is expected to reduce its bank capital requirements by 8%, the EU and Switzerland are moving to tighten regulations. EU banks could see a 1% increase in capital requirements, and Swiss banks up to 33% — potentially forcing UBS to raise as much as USD 26 bn after its Credit Suisse rescue. This split will “drive a further market share gain by US banks and the UK will just about hold its market share, while the Swiss and the EU banks will lose more ground,” Alvarez & Marsal’s Fernando de la Mora told the FT.

MARKETS THIS MORNING-

Flaring trade tensions between the US and China are weighing down Asian markets this morning, with Hong Kong’s Hang Seng down 2.2%, the Shanghai Composite down 1.2%, and Japan’s Nikkei down 1%. Meanwhile, Wall Street futures are in the green, recovering after Trump signaled on social media he might not follow through with China tariff threats.

THE CLOSING BELL: TADAWUL-

The TASI fell 0.8% yesterday on turnover of SAR 4.7 bn. The index is down 4.5% YTD.

In the green: Maharah (+9.9%), Sasco (+7.4%) and Bahri (+7.2%).

In the red: Naseej (-10.0%), Gas (-4.1%) and Care (-3.5%).

THE CLOSING BELL: NOMU-

The NomuC rose 0.2% yesterday on turnover of SAR 40.6 mn. The index is down 17.8% YTD.

In the green: Aldawliah (+14.3%), Rawasi (+12.8%) and Wajd Life (+12.1%).

In the red: Time (-7.6%), UFG (-6.9%) and Service Equipment (-6.1%).

CORPORATE ACTIONS-

Saudi Reins.Company (Saudi Re) received shareholder approval to increase its capital by 46.6% to SAR 1.7 bn via a bonus share issuance, it said in a disclosure to Tadawul yesterday. The SAR 539.8 mn hike will be funded through retained earnings, with 51.5 mn shares allocated to shareholders who will receive 4 bonus shares for every 9 shares held, in addition to 2.5 mn shares allocated for employees. The move aims to support the company’s growth and strengthen its financial position.