U.S. regulators are preparing to ease a key banking rule, which could mean big upside for financial stocks. According to the reports, authorities are expected to scale back the Supplementary Leverage Ratio (SLR)—a post-2008 rule that requires big banks to hold extra capital against all assets, even low-risk ones like U.S. Treasuries.
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The push to reduce the Supplementary Leverage Ratio (SLR) aims to return it to its original role as a backstop, not a binding limit that restricts bank activity. Regulators and industry advocates say the current rule forces banks to hold capital even against the safest assets, like U.S. Treasuries and central bank reserves, making it harder for them to provide liquidity and support key markets such as government bonds.
Bank lobbyists argue the rule is outdated and too strict. They say it discourages banks from holding safe assets and limits their ability to support the $29 trillion Treasury market, especially during times of stress. Regulators are now considering changes that could align U.S. standards with looser international norms.
One proposal is to exclude Treasuries and central bank reserves from the SLR calculation—something that was done temporarily during the pandemic. If that happens, banks could free up an estimated $2 trillion in balance sheet capacity.
Benefits and Risks
State Street (STT) may be the biggest winner. Analysts say it’s one of the few banks currently constrained by the SLR. Other large players like JPMorgan (JPM), Goldman Sachs (GS), and Bank of America (BAC) could also gain, especially through expanded trading capacity in Treasuries and more flexible capital use.
Critics say the SLR is a simple, effective safeguard – especially when other risk models fail. Loosening it could reduce banks’ ability to absorb losses in a downturn, potentially raising systemic risk.
Still, markets will likely focus on the short-term upside – more lending, trading, and better margins.
Using TipRanks’ Comparison Tool, we’ve compared all the banks mentioned in the article to see how each could be positively or negatively impacted by the potential rollback of capital requirements.
