Major Banks Gain as FDIC Advances Plan to Ease Key Capital Rule
Proposal to relax the supplementary leverage ratio could free up billions in capital and aims to improve liquidity in the U.S. Treasury market.
Shares of the largest U.S. banks edged higher Tuesday after the Federal Deposit Insurance Corporation (FDIC) advanced a proposal to relax a key capital rule, signaling a significant concession to an industry that has intensely opposed stricter requirements.
The regulatory shift targets the enhanced supplementary leverage ratio (eSLR), a post-2008 crisis measure that requires the biggest banks to hold a minimum level of capital against all their assets, including ultra-safe holdings like U.S. Treasuries. The proposed change is expected to ease balance sheet constraints, potentially freeing up billions in capital and improving the banking system’s ability to support the Treasury market.
In Tuesday morning trading, JPMorgan Chase & Co. (JPM) rose 0.50%, while Bank of America Corp. (BAC) gained 0.79%. The moves reflect investor optimism that a less restrictive capital regime will directly benefit the nation's largest deposit-taking institutions. Goldman Sachs Group Inc. (GS), with a greater focus on capital markets, was little changed.
The proposal is a key development in the ongoing debate over the so-called "Basel III endgame," a sweeping set of international standards designed to increase the resilience of the financial system. U.S. regulators had initially proposed a stringent American version of the rules, sparking a fierce lobbying campaign from the banking industry, which argued the measures were excessive and would stifle lending.
According to a notice from the agency, the FDIC board met to consider a final rule that would modify the eSLR standards for U.S. Global Systemically Important Bank Holding Companies (GSIBs). The core of the change would be to replace the current, higher requirement with a buffer equivalent to 50% of the bank's capital surcharge, better aligning it with international standards.
For years, banking executives have argued that the eSLR, in its current form, acts as a binding constraint that discourages them from participating in low-risk activities, most notably acting as intermediaries in the massive U.S. Treasury market. By forcing banks to hold capital against Treasuries and reserves held at the Federal Reserve, the rule makes it more costly to facilitate the trading of government debt, a function critical to global financial stability.
The industry's push for reform gained traction as policymakers, including Federal Reserve Chair Jerome Powell, acknowledged concerns about the rule's potential to impact Treasury market liquidity. This latest proposal suggests that regulators are moving toward a more industry-friendly calibration, seeking a balance between safety and market functioning.
Analysts see the move as a significant de-risking event for the banking sector, which had been bracing for a much harsher outcome from the Basel III finalization. While the initial proposal from regulators in 2023 was met with stiff resistance, this adjustment on a key leverage rule indicates a willingness to compromise.
The change could have broad implications beyond bank stock prices. Proponents of the reform, including industry group the Bank Policy Institute, contend that a recalibrated eSLR will enhance financial stability by allowing banks to provide more liquidity to markets during times of stress. A more flexible balance sheet could also translate into greater capacity for lending to businesses and consumers, supporting broader economic activity.
While the proposal marks a crucial step, it is part of a complex regulatory process that is expected to unfold into 2026. However, for investors, the FDIC’s action provides the clearest signal yet that the future of U.S. bank regulation may be less punitive than once feared.