Supporters of the changes argue current capital standards discourage banks from holding low-risk assets such as US Treasuries and reduce their ability to provide liquidity during periods of market stress. Critics, however, warn that easing requirements could weaken financial safeguards established after the global financial crisis.
Federal regulators in March proposed lowering aggregate capital requirements for the largest US banks by roughly 5%, according to multiple reports. The reforms would also reduce leverage constraints for some institutions and simplify aspects of the Basel III framework.
The Greenwich report suggested the reforms could particularly benefit US dealers competing against both European banks and fast-growing private credit and nonbank trading firms.
European lenders, meanwhile, continue to face pressure over their ability to compete with Wall Street giants. Analysts have noted that stricter capital regimes and fragmented regional markets have limited the scale and profitability of many European investment banks compared with their US counterparts.
The debate has also exposed divisions among policymakers and regulators. Some officials argue banks already hold ample capital and that lowering requirements may primarily benefit shareholders through increased buybacks and dividends rather than translating into greater lending activity.
