### Trump Administration Moves to Ease Regulations on Wall Street Banks

In a significant shift, the Trump administration is poised to deliver a regulatory win for Wall Street banks by easing measures put in place after the 2008 financial crisis. Federal regulators appointed by Trump are on the verge of finalizing a proposal to relax the stringent capital requirements for the largest banks in the United States. This capital cushion is crucial for absorbing potential losses and ensuring solvency during economic downturns.

This well-anticipated proposal is a collaborative effort by the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC). Sources familiar with the matter revealed this information under anonymity, suggesting that the regulatory plan may be unveiled in the upcoming months.

Treasury Secretary Scott Bessent has underscored that reducing capital requirements is now a "top priority" for the administration. He expects definitive actions on this issue to be taken "over the summer." Highlighting the dramatic shift in federal financial regulators following the 2024 elections, financial analyst Ed Mills of Raymond James remarked that big banks seem to be "back in the driver's seat."

This move marks a significant reversal from the previous administration's stance. Last year, Biden-era regulators had proposed increasing the capital buffer for these banks, a move that was strongly opposed by the industry. The rule under discussion pertains to the supplementary leverage ratio, a safeguard compelling banks to maintain a specific capital level relative to their total assets.

Financial industry groups and Republican lawmakers have argued that the current requirements restrict banking activities, particularly those involving U.S. Treasuries. Bessent contends that revising these rules will boost the Treasury market by facilitating easier buying and selling of government debt and potentially lowering interest rates.

Travis Hill, acting chair of the FDIC, stated that a joint proposal with other regulators could be expected "in the relatively near future." They aim to adjust the requirements to prevent them from overly constraining the largest banks.

A similar deregulatory effort failed to materialize in 2018 during the first Trump administration due to inter-regulatory disagreements. During the Biden administration, banks successfully opposed a proposal to significantly raise capital requirements. Amid the COVID-19 pandemic in 2020, regulators temporarily adjusted the leverage ratio, easing the burden on banks with regard to Treasuries and central bank reserves. However, this relief expired in March 2021.

Currently, regulators are considering whether to modify the formula for calculating capital requirements or reintroduce a permanent version of the pandemic-era relief. The Federal Reserve, OCC, and FDIC have declined to comment on the proposal at this time.

Critics, particularly from Wall Street reform groups, argue that easing these requirements could heighten financial instability. Phillip Basil from Better Markets warned that reducing the capital threshold for megabanks poses increased economic risks. He accused the banking industry of leveraging recent Treasury market volatility to justify long-desired regulatory rollbacks.

Ultimately, while the anticipated changes might slightly increase demand for U.S. Treasuries, experts like Gennadiy Goldberg from TD Securities question whether it will achieve the administration's broader economic goals. The extent of the impact on both capital levels and the Treasury market remains uncertain.