WASHINGTON, Oct 02 (Reuters): As President Donald Trump's regulators revamp bank rules, big lenders expect their capital requirements could fall, in a stunning victory for the industry which faced a big hike under former President Joe Biden, according to senior industry executives.
Aiming to cut red tape that Trump's agency picks say is hurting the US economy, they are working on the most sweeping overhaul of US capital rules since the global financial crisis of 2008.
In addition to narrowing the "Basel Endgame" capital hikes which sparked unprecedented pushback from Wall Street banks, the Fed plans to reduce a capital surcharge levied on risky global banks, shrink a key leverage constraint, and overhaul annual tests that gauge whether lenders can withstand an economic shock.
The country's largest lenders, which have lobbied hard for the long-sought review, are optimistic that the changes combined will result in their capital levels remaining flat or falling, said six industry and regulatory sources, including three top bankers.
That expected outcome, reported here for the first time, marks a dramatic turnaround for the industry which faced a 19 per cent hike in 2023 under the draft Basel capital rules which proposed changes to how big banks gauge lending and trading risks.
While the Fed last September said that hike would be halved, the plan was never finalized and died with Trump's election.
Big banks have long complained that capital rules are excessive and poorly calibrated, and that some of that cash could better serve the economy through lending. They also argue that they weathered the COVID-19 economic shock just fine.
Critics say efforts to chip away at the capital regime are dangerous, and could leave the industry vulnerable at a time when the outlook for the US economy is growing cloudy.
With big banks including JPMorgan Chase, Bank of America and Citigroup together holding around $1 trillion in capital, even a small dip could free up billions of dollars for lending, trading, dividends and share buybacks.
"You're going to see here the most aggressive streamlining or easing of bank regulations that we've seen certainly since Dodd-Frank and probably sometime before that," said Ian Katz, managing director at Capital Alpha Partners, referring to the landmark 2010 post-crisis law that overhauled bank rules.
A spokesperson for the Fed's new regulatory chief, Michelle Bowman, who is leading the overhaul, declined to comment. Bowman said last week that she wants the rules to "work well together" and did not necessarily expect capital to fall. Regulators will unveil a new Basel draft by early 2026, she added.
The Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation, which are also working on the Basel draft, also declined to comment.
"America's largest banks are the strongest in the world," said Amanda Eversole, CEO of the Financial Services Forum which represents the country's eight biggest banks. "Modernizing capital rules will let them put that strength to work - fueling growth for consumers, small businesses, and the economy."
