The Federal Reserve has proposed easing a key capital rule for banks, allowing them to hold more low-risk assets such as Treasurys. The enhanced supplementary leverage ratio, also known as eSLR, regulates the quality and quantity of capital banks keep on their balance sheets. The Fed approved the plan on a 5-2 vote, putting it open for a 60-day public comment period.
The eSLR aims to ensure the stability of large US banks by reducing capital requirements. Currently, banks must hold at least 5% in capital, but the proposed rule would lower this to between 3.5% and 4.5%. Subsidiaries would be required to meet a similar range of 6%.
Fed officials say the move is necessary due to concerns over bank reserves growing and the rise of Treasury market liquidity. However, not all Fed officials agree with the proposal. Two governors, Adriana Kugler and Michael Barr, expressed opposition, citing that banks may use the new regulations to increase shareholder payouts rather than boosting Treasury intermediation.
The proposal aligns with global Basel standards for banks, which aim to ensure financial stability. Opponents of the rule argue that it could lead to banks holding more low-risk assets, potentially reducing capital requirements even further in the future. The Fed has invited public comment on the proposed rule, which will be considered over the next 60 days.
Source: https://www.cnbc.com/2025/06/25/divided-fed-proposes-rule-to-ease-capital-requirements-for-big-wall-street-banks.html