Trump Administration Plans 5% SLR Rollback for US Banks

The US government is reportedly preparing to announce a significant rollback in banking regulations, which will ease capital requirements for financial institutions. This move is part of the Trump administration's efforts to reduce the supplementary leverage ratio (SLR) for US banks' capital reserves. The current SLR rules were implemented as part of Basel III in 2014, with the aim of preventing another financial crisis similar to the 2008-2009 Global Financial Crisis. However, some argue that these regulations hinder market growth and the financial industry's development.

Greg Baer, head of the Bank Policy Institute lobby group, has expressed concerns about the current regulations. He stated, “Penalizing banks for holding low-risk assets like Treasuries undermines their ability to support market liquidity during times of stress when it is most needed… Regulators should act now rather than waiting for the next event.” Federal Reserve Chair Jerome Powell also supports this view, stating earlier this year that reducing the SLR would “strongly” help support the US Treasury market. Powell said, “We need to work on Treasury market structure, and part of that answer can be, and I think will be, reducing the calibration of the supplemental leverage ratio.”

However, not everyone agrees with this approach. Nicolas Véron, senior fellow at the Peterson Institute for International Economics, believes that given the current risks for US banks and the role of the dollar in the global economy, now is not the right time to relax capital standards. Under Basel III, systemically important banks (SIBs) in the United States are required to maintain a supplementary leverage ratio (SLR) of 5% or more at the holding company level and 6% at the insured depository institution level. Many other developed countries adhere to the Basel III minimum SLR of 3%, though some jurisdictions have proposed or implemented slightly higher standards ranging from 3.5% to 4.25%.

The precise SLR percentage that regulators are aiming for has not been specified, but lobbyists have indicated a desire to align America’s requirements more closely with international standards. This move by the Trump administration to ease banking regulations is likely to have significant implications for the financial industry, potentially providing more flexibility for banks while also raising concerns about the stability of the financial system in the face of future economic shocks.