- Key insight: A group of Democratic lawmakers led by Senate Banking Committee ranking member Elizabeth Warren, D-Mass., is urging bank regulators to drop a proposal that would reduce capital requirements under the supplemental leverage ratio.
- Expert quote: "Promoting a healthy Treasury market is a laudable and shared goal, but severely loosening capital requirements for the largest banks is the wrong tool to achieve it." — Democratic lawmakers' letter
- Forward look: The proposal is meant to increase banks' purchase of Treasury securities, which in turn would improve liquidity in that critical global market. Democratic lawmakers' letter highlights growing concerns that the proposal would not have the positive effect on the Treasury market that the administration predicts.
WASHINGTON — A group of Democratic lawmakers is challenging one of the Trump administration's arguments for
In a letter sent Friday to federal banking regulators, Senator Elizabeth Warren, D-Mass., and six other progressive lawmakers disputed claims that reducing the enhanced supplementary leverage ratio, a key capital requirement that limits how much banks can borrow relative to their equity, would encourage major banks to increase their Treasury holdings, noting that banks already have more than $3 trillion in unused capacity under current rules.
The lawmakers asked that the bank regulators withdraw the proposal, a call that is unlikely to be heeded by the Trump administration, which has already committed to modifying the eSLR. It does, however, highlight a fear that is gaining traction in some Washington and Wall Street circles: that modifying the eSLR won't actually aid government bond markets that desperately need a boost.
The Treasury market justification has become a centerpiece of regulators' argument for the
"Promoting a healthy Treasury market is a laudable and shared goal, but severely loosening capital requirements for the largest banks is the wrong tool to achieve it," the Democrats wrote in their letter to the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency. "There is no guarantee that [global systemically important banks] will purchase more Treasuries. They currently have more than $3 trillion in capacity to purchase more Treasuries under the existing eSLR requirements but have opted not to use it.
"It is dangerous to relax standards for Wall Street, just as President Trump's reckless policy agenda pushes our economy to the brink," the Democrats wrote. "The agencies risk repeating history, putting depositors, the financial system, and broader economy at risk."
During the comment period following the rule's proposal in July, Warren and other Banking Committee Democrats had requested that regulators
President Donald Trump's banking regulators
The letter also cited former New York Fed President Bill Dudley's
Fed Governor Michael Barr, who previously served as vice chair for supervision,
The proposal would reduce capital requirements by at least 27% for the largest banks' insured subsidiaries, with similar reductions potentially affecting bank holding companies over time. This represents nearly three times the reduction contemplated in a
Banking industry representatives have long argued that current leverage requirements are too restrictive and hamper their ability to serve as market makers in Treasury securities. They contend that the current framework unnecessarily constrains their balance sheets and limits their capacity to support government bond markets during periods of stress.
The letter was signed by Warren, Senate Banking Committee members Jack Reed and Tina Smith, Senator Bernie Sanders, and House members Jerrold Nadler, Rashida Tlaib, and Pramila Jayapal.
The public comment period for the proposed rule closed in August, and regulators are expected to consider finalizing the changes in the coming months.
