US Regulators Plan to Reduce Capital Buffers for Large Banks – Coincu

On June 18, major U.S. banking regulators announced plans to reduce capital buffer requirements for large banks. The proposal targets systemically important banks like JPMorgan Chase.

This move aims to relax constraints that were hindering banks’ trading activities in the vast U.S. Treasury market, potentially enhancing liquidity and narrowing spreads.

Regulatory Adjustment to Leverage Ratios for Banks

US regulators, including the Federal Reserve, FDIC, and OCC, are planning to adjust the enhanced Supplementary Leverage Ratio (eSLR) requirements for large banks. The capital requirements for bank holding companies could decrease from 5% to a range between 3.5% and 4.5%, while subsidiary requirements may also see similar reductions. Such changes follow concerns from the banking industry regarding existing regulatory constraints.

This regulatory adjustment is expected to free up capital for large banks which could improve liquidity in the U.S. Treasury market. Industry participants believe the reduction will make it easier for banks to engage in market-making activities.

Officials from the Fed, FDIC, and OCC have not issued formal public statements on the proposal. However, trade organizations have called for timelines and clarity to help banks adjust to these evolving rules. According to SIFMA & Industry Joint Trades, “We urge regulators to clarify timelines and allow banks to make informed capital planning decisions as rules evolve.”

Financial Markets’ Potential Reaction to Banking Policy Changes

Did you know? In 2018, similar changes to leverage ratios under the Trump administration were made to support market liquidity and had a major role in enhancing market activity in low-risk government securities.

Bitcoin, currently priced at $104,993.00 with a market cap of $2.09 trillion, has seen varied price movements according to CoinMarketCap. It experienced a 2.05% drop over the last 24 hours, yet a 24.22% increase over 60 days. The Bitcoin market dominance remains strong at 63.91%.

The Coincu research team suggests that lowering capital buffers might boost liquidity in safer markets like the U.S. Treasury market. While there isn’t a direct effect on cryptocurrencies, broader banking activity can indirectly influence crypto markets by altering risk sentiment and liquidity dynamics.