US Plans to Ease Capital Rule Limiting Banks Treasury Trades
(Bloomberg) -- The top US bank regulators plan to reduce a key capital buffer by up to 1.5 percentage points for the biggest lenders after concerns that it constrained their trading in the $29 trillion Treasuries market.
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The Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency are focusing on what’s known as the enhanced supplementary leverage ratio, according to people briefed on the discussions. This rule applies to the largest US banks, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley.
The proposal would lower a bank holding company’s capital requirement under the eSLR to a range of 3.5% to 4.5%, down from the current 5%, according to the people, who didn’t want to be identified discussing nonpublic information. The firms’ banking subsidiaries would also likely see their requirement reduced to the same range, down from the current 6%, the people said.
The revisions resemble those from 2018, when President Donald Trump’s regulators sought to “tailor” the eSLR calculation that applied to US global systemically important banks, according to the people familiar with the matter. The people said the proposal’s language could still change.
The KBW Bank Index rose on Wednesday after Bloomberg’s report and was up 2% at 1:13 p.m. in New York. Shares of JPMorgan climbed as much as 3%, while Wells Fargo rose as much as 2.9%.
The proposal will look to change the overall ratio rather than exclude specific assets like Treasuries, as some observers had predicted. Still, it’s expected to ask for public comment on whether the agencies should carve out Treasuries from the calculation, the people said.
The Fed said Tuesday it plans to meet on June 25 to discuss the plan. On Wednesday, the FDIC said it will hold a June 26 meeting on the enhanced version of the SLR — which went into effect in 2018.
Representatives for the Fed, FDIC and OCC declined to comment.
Fed Chair Jerome Powell and other officials supported possible revisions to the supplementary leverage ratio standards in a bid to bolster banks’ roles as intermediaries in the market. In February, he told the House Financial Services Committee that he had been “somewhat concerned about the levels of liquidity in the Treasury market” for a long time.
In April, President Donald Trump’s tariffs rattled the markets, sharpening investors’ focus on the SLR standards.
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