The US Federal Reserve is preparing to loosen capital requirements for large banks, signalling a shift in regulatory policy that could alter how major lenders manage their balance sheets and deploy capital. The proposal forms part of a broader revision of post-financial crisis banking rules that have governed capital buffers for the past decade.
Under the planned changes, regulators intend to adjust elements of the capital framework tied to international Basel standards and the surcharge applied to globally systemically important banks. Officials have indicated that the revised approach will slightly reduce the amount of capital large institutions are required to hold against potential losses. Earlier regulatory proposals had suggested a significant increase in capital requirements, but the latest plan would scale those back and bring requirements closer to earlier levels.
Federal Reserve Vice Chair for Supervision Michelle Bowman said the revisions aim to better align capital rules with actual risk exposures and remove overlapping regulatory requirements. The proposal also seeks to recalibrate the surcharge applied to the largest banks and introduce adjustments to leverage and stress-testing rules, with regulators arguing that the changes would improve transparency and efficiency in the capital framework.
Supporters within the banking sector argue that easing the requirements could release substantial capital that institutions currently hold in reserve. Estimates suggest large US banks collectively hold more than $175bn in excess capital, which could potentially be used to support lending, investment or shareholder distributions if regulatory constraints are reduced.
However, the proposal has also drawn criticism from policymakers and financial stability advocates who warn that lowering capital buffers could weaken safeguards designed after the 2008 financial crisis. Critics argue that strong capital requirements remain essential to ensuring the resilience of the financial system during periods of economic stress.
The Federal Reserve is expected to vote on the proposal before opening a public consultation period lasting several months. The final framework may not be implemented until later in the year, depending on regulatory review and industry feedback, leaving the ultimate scope of the capital changes still subject to debate.
