U.S. bank regulators are moving closer to finalizing a major change in how banks manage their capital, a step that could make it easier for them to hold more U.S. government bonds. According to a Bloomberg News report, officials from the Federal Reserve and other regulatory agencies have agreed on the terms of a plan to adjust capital requirements, sending a final proposal to the White House for review.
This plan centers on what is known as the “enhanced supplementary leverage ratio” (eSLR), a key rule that determines how much capital large banks must hold against their assets. The rule, first introduced after the 2008 financial crisis, requires banks to set aside capital for every dollar of assets they own, regardless of risk. That means that even the safest assets, like U.S. Treasury bonds, are treated the same as riskier loans or investments when it comes to capital requirements.
Critics, including major Wall Street banks, have long argued that this approach discourages banks from holding Treasuries, the backbone of the global financial system. Because U.S. Treasuries are considered virtually risk-free, banks have pushed for the rule to be revised so that they are not penalized for holding such safe assets.
The Federal Reserve’s proposal, which was advanced in June and now awaits formal approval, aims to fix this by linking a bank’s required capital levels more directly to how systemically important it is, essentially how big a role it plays in the global financial system. If adopted, the reform would reduce the amount of capital large banks must hold against U.S. Treasuries and other low-risk assets, freeing up balance sheet space for more government debt and potentially making markets more liquid.
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Regulatory Win For Banks
For banks, this would be a significant regulatory win. The industry has been lobbying for this change for years, arguing that overly strict capital rules have made it harder for them to participate fully in Treasury markets, especially during times of financial stress when the government relies heavily on banks to buy and trade its debt.
Supporters of the reform say easing the leverage ratio would help strengthen market stability by ensuring there is always enough demand for U.S. government bonds. Critics, however, warn that it could reduce the overall safety buffer banks maintain, making them more vulnerable in a downturn.
The proposal still needs final sign-off from the White House before regulators, including the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), can formally adopt it. Bloomberg’s report suggests that officials are hoping to complete the process within the next few weeks, though the timeline could shift depending on the review outcome.
If implemented, the reform would also mark an early policy victory for Michelle Bowman, the Federal Reserve’s Vice Chair for Supervision, who has been leading a broader push to simplify and modernize U.S. banking regulations. Her deregulatory stance has drawn both praise and criticism. Supporters see it as an overdue update to outdated rules, while skeptics worry it could weaken safeguards put in place after the 2008 crisis.
As the plan moves closer to final approval, market watchers are paying close attention. Any change in how banks handle Treasuries could have ripple effects across global finance, influencing everything from bond yields to the availability of credit in the broader economy. For now, the focus remains on the White House, where the final decision could soon reshape how America’s biggest banks do business with government debt.
