Pete Schroeder, Saeed Azhar, Davide Barbuscia
4 min read
By Pete Schroeder, Saeed Azhar, Davide Barbuscia
WASHINGTON/NEW YORK (Reuters) -The banking industry is optimistic that U.S. regulators will soon move to change how much capital they set aside against typically safe investments, particularly after the turmoil in Treasury markets last month.
Such a move to revamp the "supplementary leverage ratio" could reduce the amount of cash banks must reserve, freeing them up for more lending or other activities, and could incentivize banks to play a larger role in intermediating Treasury markets.
"Current leverage-based capital requirements are outdated and at odds with financial stability and economic growth. Reform is needed quickly to better serve U.S. taxpayers, capital markets, consumers, businesses, and the economy," said Kevin Fromer, the president and CEO of the Financial Services Forum, which represents the nation's largest banks.
Regulators have flagged the SLR as meriting reconsideration and are mulling whether to tweak the rule's formula to reduce big banks' burdens or provide relief for extremely safe investments, like Treasury bonds. The debate is driving industry hopes that agencies could as soon as this summer propose an overhaul, according to three sources familiar with the matter. Bank lobby groups, including the Forum and the Bank Policy Institute, which also represents larger banks, have been pushing for the change.
Treasury Secretary Scott Bessent told lawmakers last week that a revamp was a "high priority" for the three regulatory bodies charged with the rule: the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
Banks have argued for years that the SLR, established after the 2007-2009 financial crisis, should be reformed. They contend it was meant to serve as a baseline, requiring banks to hold capital against even very safe assets, but has grown over time to become a binding constraint on bank lending.
BPI President and CEO Greg Baer called reform "overdue and welcome" in a statement to Reuters.
When asked by Congress in February if the leverage requirements discouraged banks from helping intermediate the Treasury market, Fed Chair Jerome Powell agreed, and said it was time to revisit the issue.
Such reforms are on a long wishlist the banking industry hopes to advance with the Trump administration, which has made deregulation to spur economic growth a top priority.
Spokespeople for the Fed, FDIC and Office of the Comptroller of the Currency, which shares responsibility for the SLR, declined to comment.
