June 24, 2025 – U.S. financial regulators are on the cusp of implementing one of the most significant rollbacks of bank capital requirements since the 2008 financial crisis, a move that could reshape the banking industry but also heighten risks of bank failures, according to analysts and historical precedents.
The proposed changes, driven by the Trump administration’s deregulatory agenda, aim to reduce the Enhanced Supplementary Leverage Ratio (eSLR) for major banks, potentially freeing up capital for lending and Treasury market activity but raising alarms about systemic vulnerabilities.
The Federal Reserve, alongside other regulators, is expected to consider lowering the eSLR requirement from 5% to 3.5% for the nation’s largest banks, including JPMorgan Chase (JPM), Bank of America (BAC), Goldman Sachs (GS), and Morgan Stanley (MS), as reported by Bloomberg.
The eSLR, introduced post-2008 to ensure banks maintain sufficient capital to absorb losses during economic downturns, acts as a critical buffer for global systemically important banks (GSIBs).
This proposed 1.5 percentage point reduction could release significant capital, enabling banks to expand lending and increase their role in the $29 trillion U.S. Treasury market.
Treasury Secretary Scott Bessent has championed the change, arguing it will boost liquidity in the Treasury market, stimulate lending, and ease pressure on long-term borrowing rates.
Federal Reserve Governor Michelle Bowman, nominated as the Fed’s top banking regulator, signaled in a recent speech that this is only the beginning of broader capital rule reconsiderations.
The Federal Reserve’s decision to eliminate “reputational risk” as a supervisory metric further underscores the deregulatory push.
“This proposal takes a first step toward what I view as long overdue follow-up to review and reform what have become distorted capital requirements,” said Bowman.
Economic, Market, and Risks of Bank Failures
Proponents argue that easing the eSLR will enhance bank profitability by freeing up funds for investment and growth.
The change is also designed to address concerns about liquidity in the Treasury market, where banks play a pivotal role as intermediaries.
Fed Chair Jerome Powell has previously expressed concerns about Treasury market liquidity, supporting adjustments to leverage ratios.
Additionally, the rollback aligns with industry demands, with JPMorgan CEO Jamie Dimon advocating for regulatory relief to spur economic activity.
However, critics warn that the move could undermine financial stability.
Posts on X reflect public skepticism, with some users comparing the proposal to pre-2008 policies that fueled excessive leverage and risk-taking.
The 2008 crisis, triggered by insufficient capital buffers and over-leveraged banks, led to widespread failures, including Lehman Brothers’ collapse, and necessitated massive taxpayer-funded bailouts.
Reducing capital requirements could similarly weaken banks’ resilience to economic shocks.
Lowering the eSLR could increase the likelihood of bank failures by reducing the capital cushion available to absorb losses during crises.
The Basel III framework, which includes leverage ratio requirements, was designed to prevent another 2008-style meltdown, where U.S. banks lost approximately $400 billion in capital and 8.7 million jobs were wiped out.
A 2020 temporary exclusion of Treasuries from leverage calculations showed limited uptake by banks, partly due to dividend restrictions, but also highlighted the risks of reduced capital buffers.
Analysts note that while banks like JPMorgan and Bank of America are expected to pass the Federal Reserve’s 2025 stress tests, demonstrating ample capital under current rules, a lower eSLR could erode this resilience over time.
In a severe downturn, banks with thinner capital buffers may struggle to cover losses, potentially leading to insolvency or requiring government intervention.
The 2008 crisis demonstrated how interconnected bank failures can trigger global market turmoil, with ripple effects still felt today.
Moreover, the rollback could exacerbate systemic risks in the Treasury market.
While intended to boost liquidity, easing capital rules without excluding Treasuries from leverage calculations may not fully address market constraints, potentially leaving banks exposed to volatility.
Singapore and other Asian financial hubs are already bracing for competitive challenges and market instability stemming from this U.S. policy shift.
Also Read: A Massive US Bank Is Now Freezing Money and Closing Accounts Per Reports
Broader Deregulatory Overview
The eSLR reduction is part of a broader deregulatory wave under the Trump administration.
The Federal Deposit Insurance Corporation (FDIC) recently eliminated problem bank asset disclosures, a practice in place since 1990, raising transparency concerns.
Republican-led initiatives, including proposed legislation to curb “debanking” based on political views, further signal a pro-industry stance.
However, experts caution that deregulation cycles often lead to “revenge regulations” when political tides shift, creating long-term uncertainty for banks.
The proposed eSLR rollback represents a significant victory for Wall Street but comes with substantial risks.
While it may stimulate lending and Treasury market activity, the reduction in capital buffers could leave banks vulnerable to failures, echoing the conditions that precipitated the 2008 crisis.
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