Reforms Needed Based on a Long-Term Roadmap
U.S. Treasury Secretary Scott Besant has urged regulators to consider abolishing the dual capital regulatory framework introduced under the previous Joe Biden administration, emphasizing the need for banking regulatory reform.
On July 21 (local time), at a U.S. Federal Reserve (Fed) regulatory conference, Secretary Besant pointed out that excessive capital regulations impose unnecessary burdens on financial institutions, reduce lending, harm economic growth, and distort the market by incentivizing lending to the non-bank sector.
He stressed, "We need deeper reforms based on a long-term roadmap for innovation, financial stability, and resilient growth."
Earlier, on June 25, the Fed held a board meeting and revised the Supplementary Leverage Ratio (SLR) standards applied to eight systemically important banks. This was done to ease the capital requirements for these banks and their subsidiaries.
The SLR is a regulatory indicator that measures a bank's capital adequacy. It was introduced in 2018 to prevent a recurrence of crises like the global financial crisis, during which large banks collapsed.
If the proposed rule is implemented as announced, it is estimated that the Tier 1 capital requirements for the largest banks will decrease by a total of $1.3 billion (1.4%).
The Donald Trump administration expects that with eased regulations, large banks will use their excess funds to purchase significant amounts of U.S. Treasury bonds, thereby lowering bond yields.
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