Regulatory winds are shifting, the Federal Reserve is considering lowering the bank capital requirement from 19% to a minimum of 3%

The Federal Reserve has presented a revised proposal to other U.S. regulatory agencies that significantly relaxes capital requirements for large Wall Street banks, marking the latest signal of financial deregulation since Trump took office.

According to media reports citing informed sources, some officials estimate that the new proposal will reduce the overall capital increase for most large banks to between 3% and 7%, a figure far below the 19% increase proposed in 2023 and lower than the 9% increase suggested in last year's compromise version. Banks with larger trading business portfolios may see even smaller increases or potentially a decrease.

This move is expected to be welcomed by Wall Street banks, which had previously strongly opposed the original proposal known as the "Basel III Final Version," with critics arguing that significantly raising capital requirements would increase loan costs and weaken the position of U.S. banks relative to international competitors. However, supporters emphasize that this is crucial for financial stability.

Regulators are considering adjustments to the assessment methods for the risk levels of trading, wealth management, and investment banking activities, collectively referred to as market risk. Media reports previously indicated that the Federal Reserve plans to unveil the new proposal as early as the first quarter of 2026, led by Michelle Bowman, the vice chair for supervision appointed by Trump earlier this year.

Core Adjustments of the Revised Proposal

Under the framework of the revised proposal, regulators are reassessing the calculation methods for market risk. This adjustment could have a significant impact on banks with large trading operations. Industry organizations previously stated in a letter to regulators that the original Biden-era proposal would lead to excessive growth in market risk capital requirements and undermine diversified trading business models.

Treasury Secretary Janet Yellen had previously suggested not adopting certain aspects of the 2023 proposal, which required some banks to comply with the higher of two different risk capital measurement methods.

The Federal Reserve's documents may also provide guidance to regulators, allowing for a reduction in the capital that banks must allocate for fee-based services such as wealth management and certain credit card businesses. As part of the revised framework, regulators are also considering providing a withdrawal option for mid-sized banks if they agree to accept other capital restrictions.

Positive Signals in the Market

Although U.S. officials have not yet reached a final agreement, informed sources indicate that regulators have largely reached a consensus on the direction of the measures. Bowman has discussed the proposal with the heads of the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, both of which must approve the proposal. Representatives from the Federal Deposit Insurance Corporation, the Federal Reserve, and the Office of the Comptroller of the Currency declined to comment.

As regulators relax enhanced supplementary leverage ratio requirements and simplify certain aspects of annual stress tests, large banks have shown more confidence in returning profits to shareholders. The six largest U.S. banks increased stock buybacks by approximately 75% in the third quarter, exceeding $27 billion.