US Stocks: Big bank capital requirements to fall "small amount" under new plan, says Fed

Large bank capital requirements will fall slightly under revised ‌drafts of sweeping bank ⁠capital ⁠rules, Federal Reserve Vice Chair for Supervision Michelle Bowman said Thursday, in a major victory for Wall Street lenders that had faced capital hikes under previous drafts. Speaking at the Cato Institute in Washington, Bowman outlined the changes to the so-called Basel rules and "GSIB surcharge" which determine how much money banks must set aside to absorb potential losses. In aggregate, the changes will lower large bank capital requirements by a "small amount" ⁠via a "sensible recalibration" of ‌existing rules, said Bowman, who was appointed to the role last year by Republican President Donald Trump. Bowman said the changes would eliminate ⁠overlap and calibrate requirements to match actual risks, arguing a steady increase in capital in recent years has been misguided and harmful.

"When capital requirements become excessive, they impair the banking system's fundamental function of providing credit to the real economy," she said according to prepared remarks.

The overhaul marks the culmination of a years-long effort by Wall Street banks to ease rules introduced following the 2007-09 financial crisis which they and the Trump-appointed regulators say are ‌impeding lending and stymieing economic growth.


A Morgan Stanley research note this week said large banks currently have over $175 billion in excess capital, and clarity on the rules could allow them ⁠begin deploying that cash via lending and share buybacks.

That expected outcome marks a dramatic turnaround for the industry, which faced a 19% increase when the proposal was first unveiled ​in 2023 by Bowman's Democratic predecessor Michael Barr, sparking an unprecedented industry pushback.

Bowman said Thursday that if her planned changes are adopted, banks capital will return to 2019 levels.

Both rules, which are complex and lengthy, will be subject to industry feedback, and it is unclear when they may ultimately be finalized.