WASHINGTON (Reuters) – U.S. bank regulators on Wednesday proposed easing a key capital rule designed to restrict bank leverage, a move that would free up $400 million of capital across the largest U.S. banks.
The proposal from the Federal Reserve and the Office of the Comptroller of the Currency would reduce the “enhanced supplementary leverage ratio” (eSLR) and more closely tie the overall capital charge to a bank’s business model.
The announcement is the second this week from the Fed seeking to sharpen capital requirements to make them more sensitive to banks’ own business models.
Together, they mark the first major step by the Fed to revise bank regulations introduced following the 2007-2009 global financial crisis under the Republican administration of Donald Trump.
Currently, the eight largest U.S. banks are required to hold additional capital to reflect risks they pose to the broader system.
The eSLR is intended to serve as a backstop, aimed at ensuring the nation’s largest banks are holding a minimum level of capital and not over-extending themselves on leverage.
Banks have long complained that the rule is too blunt, forcing them to tie up capital that could be put to use elsewhere. They have pushed regulators to rethink how the eSLR is calculated.
Currently, the eight largest U.S. banks must hold a fixed extra layer of capital measured as the ratio of a firm’s tier 1 capital to its total leverage exposure. The ratio is currently at least 3 percent plus an extra layer of 2 percent.
The new proposal reduces the fixed ratio for U.S. bank holding companies to 3 percent, with the extra charge instead directly tied to the bank’s risk profile.
“The resulting leverage standard would be more closely tailored to each firm,” the regulators said in a statement.
Changes to the eSLR have been in train for some time and the proposal comes after regulators agreed globally at the Basel Committee on Banking Supervision in December to set a new minimum leverage standard.
That minimum is lower than that set by U.S. regulators, giving new officials appointed by Trump room to ease the ratio as part of their mission to boost lending and economic growth.
The change was voted for on Tuesday by Fed Chairman Jay Powell and Vice Chair Randal Quarles, but in an unusual move Governor Lael Brainard voted against the proposal.
The changes are subject to a 30-day comment period.
Reporting by Michelle Price; Editing by Chris Reese and Leslie Adler