According to Bloomberg Business, US regulators at the Federal Deposit Insurance Corp. have voted to adopt a final plan relaxing capital requirements that limit banks’ ability to act as intermediaries in the Treasuries market. The move specifically targets the enhanced supplementary leverage ratio, which determines how much capital the largest US lenders must hold relative to their total assets. Major institutions including Bank of America Corp., JPMorgan Chase & Co., and Goldman Sachs Group Inc. will now be required to maintain lower capital buffers. The final measure is expected to closely align with a proposal first unveiled back in June. This regulatory shift addresses longstanding industry complaints about constraints during market stress periods.
What this actually means
Here’s the thing about bank capital rules – they’re basically the financial system’s seatbelts. The enhanced supplementary leverage ratio was implemented after the 2008 crisis to prevent exactly the kind of leverage buildup that nearly collapsed everything. Now regulators are saying, “Okay, maybe we made the seatbelt a bit too tight.” The change means banks can use more of their existing capital to facilitate Treasury trading rather than keeping it parked as a safety cushion.
Why this matters for markets
So what’s the real impact? Treasury market liquidity has been a growing concern for years. During the March 2020 pandemic panic, even US government bonds became difficult to trade smoothly. Banks complained they couldn’t step in as buyers of last resort because capital rules made it too expensive. This relaxation theoretically gives them more flexibility during future crises. But is this solving the right problem? Some critics worry we’re repeating past mistakes by letting banks operate with thinner safety margins.
The bigger regulatory picture
Look, this isn’t happening in isolation. We’re seeing a broader shift in how regulators approach bank oversight post-COVID. The emergency measures during the pandemic showed that sometimes you need to loosen rules to keep markets functioning. Now we’re seeing which temporary fixes become permanent. The trajectory seems clear: more flexibility during stress periods, but potentially less overall buffer during normal times. It’s a calculated risk – betting that market functionality during crises outweighs the cost of slightly higher risk during calm periods.
