U.S. regulatory agencies are considering significant adjustments to capital rules for large banks. On Thursday, the Federal Reserve unveiled a comprehensive reform package aimed at relaxing capital requirements for major Wall Street institutions. This move is expected to free up tens of billions of dollars, which could be used to expand lending, fund stock repurchases, and increase dividend payments. In a statement, Federal Reserve Vice Chair for Supervision Michael Barr indicated that these adjustments would refine the overall capital framework while maintaining the robustness of the financial system under the new regime.

The proposal was jointly developed by the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC). It will now enter a 90-day public comment period before any final implementation. According to a memo released by the Fed, if the measures are enacted, they would result in a "modest decrease" in overall capital requirements for large banks. Regulators stated that the reforms aim to promote "harmonization and consistency" in the capital regulatory framework. Together with previously proposed relaxations to the Supplementary Leverage Ratio (SLR) and stress test reforms, this constitutes the most significant overhaul of bank capital rules since the 2008 financial crisis.

A portion of the proposal relates to the international Basel III regulatory framework, which is designed to prevent systemic risks from re-emerging in the banking system. Regulators anticipate that the new rules will lead to a slight increase in capital requirements for Globally Systemically Important Banks (G-SIBs) such as Citigroup (C.US), Bank of America (BAC.US), and JPMorgan Chase (JPM.US). This increase would primarily stem from more precise measurements of credit risk, market risk, and operational risk. However, compared to a 2023 proposal that called for substantially higher capital requirements, the current reform direction is notably more lenient. The earlier plan, which included setting higher capital charges for mortgage businesses, faced strong opposition from the banking industry and was ultimately not adopted.

Furthermore, the new proposal will adjust risk measurement methods for mid-sized banks, requiring them to uniformly adopt a standardized approach and eliminating the current "advanced approaches" to enhance regulatory consistency. Simultaneously, the Fed has proposed adjustments to the supplementary capital requirements for G-SIBs. These would be linked to changes in nominal GDP, and the adjustment increments would be refined from the previous 50 basis points to 10 basis points, thereby increasing flexibility and aligning more closely with international standards.

Despite these easing measures, the proposals have sparked internal disagreement among regulators. Fed Governor Michael S. Barr, who previously served as the central bank's top banking supervisor, has publicly opposed the plan. He argued that significantly lowering capital requirements is "unnecessary and unwise" and warned that it could weaken the resilience of the banking system and the broader U.S. financial system.