Trump administration prepares major rollback of bank capital rules

US regulators are preparing to roll back one of the most significant post-crisis banking rules in over a decade, marking another major step in President Donald Trump’s deregulation agenda, the Financial Times reports, citing several people familiar with the matter.

At issue is the Supplementary Leverage Ratio (SLR) — a 2014 rule requiring large banks to hold a set amount of high-quality capital against their total leverage, including off-balance sheet exposures like derivatives. The rule was implemented in the wake of the 2008 financial crisis.

The changes: The proposed changes, expected by summer, would either ease the SLR outright or exempt low-risk assets such as US treasuries and central bank deposits — a move temporarily adopted during the pandemic.

The rationale: Reintroducing that exemption could make available as much as USD 2 tn in balance sheet capacity for large banks, according to analysts at Autonomous. While most major US banks are constrained by other capital rules, the change could offer targeted relief, especially for State Street, which analysts say is most affected.

Bank lobbyists have long pushed for SLR reform, arguing it punishes safe lending and hampers activity in the USD 29 tn treasury market. “Penalising banks for holding low-risk assets like Treasuries undermines their ability to support market liquidity during times of stress when it is most needed,” CEO of the Bank Policy Institute Greg Baer said.

Top policymakers are backing the move: Fed Chair Jerome Powell said in February that SLR reform would help strengthen Treasury market structure and allow banks to take on more government debt. Treasury Secretary Scott Bessent called the reform “a high priority” for the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation, suggesting formal proposals could land within months.

But critics say now is a dangerous time to relax capital rules. “Given the state of the world [...] it doesn’t sound like the right time to relax capital standards at all,” said Nicolas Véron, senior fellow at the Peterson Institute for International Economics. European regulators also fear the US move could pressure them to offer similar relief on Eurozone sovereign debt and UK gilts.

Still, US regulators and banks argue that aligning the SLR with international standards is overdue. US banks currently face a 5% leverage requirement — higher than the 3.5%-4.25% range applied to their European, Canadian, Chinese, and Japanese peers. “Aligning US rules with international standards would give more capital headroom to the big banks than exempting Treasuries and central bank deposits from the SLR calculations,” said Sean Campbell, chief economist at the Financial Services Forum.

MARKETS THIS MORNING-

Asian markets are mixed, with Japan’s Nikkei down 0.1% following news of a contraction in Japan’s economy. Hong Kong’s Hang Seng and China’s CSI 300 are also down, though South Korea’s Kospi is up 0.3%.

Over on Wall Street, futures are nearly flat after the S&P 500 posted its fourth straight day of gains as investors continue to cheer the UAE-China trade agreement.

THE CLOSING BELL-

The DFM rose 0.7% yesterday on turnover of AED 627.7 mn. The index is up 4.6% YTD.

In the green: Salik (+4.6%), National General Ins. (+3.6%) and Emirates NBD (+3.1%).

In the red: Unikai Foods (-8.8%), Aramex (-3.6%) and Dubai Islamic Ins. and Reins. Co (-1.6%).

Over on the ADX, the index remained flat on turnover of AED 1.7 bn. Meanwhile, Nasdaq Dubai was up 0.3%.