Regulators slash capital requirements for big banks

Washington – The FDIC, Federal Reserve Board, and Office of the Comptroller of the Currency have joined forces to issue a final rule that slashes capital requirements for large banking organizations. The new regulations aim to incentivize banks to engage in lower-risk activities like intermediating in U.S. Treasury markets.

The final rule, largely similar to a proposal issued in June, targets the largest and most systemically important institutions. It modifies leverage capital standards to serve as a buffer against risk-based requirements, ensuring that these organizations don’t shy away from low-risk ventures.

For depository institution subsidiaries, the enhanced supplementary leverage ratio standard is capped at one percent, bringing the overall requirement to no more than four percent. This adjustment reflects differences in systemic risk profiles and capital needs between the larger institutions and their subordinates. The agencies estimate that the changes will reduce tier 1 capital requirements for affected bank holding companies by less than two percent.

The new rule also impacts other regulations, such as total loss-absorbing capacity and long-term debt requirements, ensuring a cohesive approach to leverage capital standards. It will take effect on April 1, 2026, with banking organizations allowed to adopt the modified standards starting January 1, 2026.

Experts predict that while these changes could potentially impact the availability of capital for external shareholders, they are unlikely to significantly alter overall levels of bank capital. The move is seen as a strategic attempt by regulators to foster a more balanced and risk-taking approach within the banking sector.

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