Regulators have signed off on a long-sought easing of capital rules for the largest U.S. banks, cutting the extra leverage cushion tied to Treasury holdings in a move meant to free up balance sheets and encourage more government bond buying. The change centers on the enhanced supplementary leverage ratio or eSLR and reflects a Trump administration push to dial back post-crisis constraints and draw more bank demand toward longer-term Treasurys such as the 10-year note.
The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency approved a final rule that caps the enhanced supplementary leverage ratio standard at one percent, making the overall leverage requirement for the affected institutions no more than four percent, according to the Fed’s statement. The agencies framed the shift around the idea that Treasurys are inherently safe investments and therefore should not require the same level of capital backing as riskier assets.
Supporters inside the administration have argued since early 2025 that reducing the eSLR would prompt big banks to buy more long-term government debt, especially 10-year Treasury notes. The expectation is that heavier bank demand would raise prices on those securities, and because yields move inversely to prices, higher prices would translate into lower yields, easing the government’s debt-service costs and putting downward pressure on longer-term borrowing rates such as mortgages.
Large banks have also pushed for the eSLR change as part of a broader effort to relax capital requirements established after the Global Financial Crisis. By lowering the amount of capital they must hold in reserve against Treasurys, the rule frees additional capital that banks can use for lending or other investments.
Fed Governor Stephen Miran voted for the rule and wrote that he supports the final version because the leverage ratio should not be the binding constraint on banks in the ordinary course of managing their balance sheets, arguing that such a constraint incentivizes higher-risk behavior for no good reason. At the same time, Miran said he was concerned that the Board and its interagency colleagues were missing an opportunity to make a more lasting and thoughtful change by excluding Treasurys and U.S. central bank reserves from the supplementary leverage ratio denominator altogether.
Some regulatory officials opposed the measure, warning that it could lessen the ability of global systemically important banks to respond to monetary and fiscal crises. Fed Governor Lisa Cook wrote that she had hoped to support a recalibration of the eSLR that would preserve appropriate stringency while avoiding undue disincentives for low-risk activities such as Treasury intermediation, but said she could not support the rule before the Board because of its economically significant reduction in the amount of capital required at FDIC-insured bank subsidiaries of global systemically important banking organizations.
Fed Governor Michael Barr also dissented, writing that the final rule unnecessarily and significantly reduces bank-level capital requirements by $219 billion for global systemically important banking organizations and weakens the eSLR as a backstop. Barr added that he was skeptical the change would improve the Treasury market's resiliency.
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