Washington is moving to ease a key capital rule for the nation’s largest banks, reopening a debate that has shaped financial regulation since the 2008 crisis. The policy shift centers on the supplementary leverage ratio, a backstop designed to force the biggest institutions to hold capital against a broad range of assets, including low-risk holdings such as U.S. Treasurys. Supporters say the change could improve liquidity in government bond markets. Critics warn it would weaken one of the clearest safeguards against another systemic shock.
What Washington Is Changing
The proposal targets the enhanced supplementary leverage ratio, or eSLR, which applies to the largest U.S. global systemically important banks. This rule was adopted after the global financial crisis as part of a broader push to make major banks more resilient by requiring them to fund themselves with more loss-absorbing capital. Unlike risk-based capital rules, the leverage ratio does not adjust for how safe or risky an asset appears to be. That feature made it a simple backstop against underestimating risk.
In June 2025, the Federal Reserve approved a proposal to revise the rule in a 5-2 vote and opened it for public comment. According to the Fed, the draft would reduce top-tier capital requirements for bank holding companies by about 1.4%, or roughly $13 billion, for the affected firms. Fed Chair Jerome Powell said the increase in low-risk assets on bank balance sheets over the past decade had made the leverage ratio more binding than intended.
The broader political and policy debate, however, extends beyond that immediate Fed estimate. Critics of the deregulatory push argue that the cumulative effect of capital relief under discussion across large-bank rules could amount to a far larger benefit for Wall Street, with some commentary placing the figure near $170 billion to $175 billion when compared with tougher capital plans debated in recent years. That larger number reflects the scale of capital banks had fought under earlier reform proposals, not the Fed’s narrower June 2025 estimate for the leverage-rule change alone.
Washington Prepares $175B Break for Big Banks — Weakening Protections Against Financial Crisis
The phrase “Washington prepares $175B break for big banks — weakening protections against financial crisis” captures the central criticism of the current shift. After regulators proposed tougher capital standards in 2023, large banks and industry groups argued the rules would unnecessarily constrain lending, market-making, and Treasury trading. By 2025, regulators had pivoted toward a more industry-friendly approach, especially on leverage requirements.
Supporters of the change say the existing leverage framework can discourage banks from holding low-risk assets or acting as intermediaries in the Treasury and repo markets during periods of stress. That matters because the U.S. Treasury market is the backbone of global finance, and disruptions there can quickly spread through funding markets. Legal analysis from Skadden said the proposal aims to reduce disincentives for banks to participate in lower-risk, lower-return activities such as U.S. Treasury intermediation.
Opponents counter that this argument is overstated and that the leverage ratio was designed precisely to remain simple and hard to game. They argue that once regulators start carving out relief for assets deemed safe, the system becomes more vulnerable to misjudging risk, the same kind of failure that contributed to earlier crises. Commentary from Money, Banking and Financial Markets argued that regulators should be raising, not lowering, big-bank capital requirements and noted that the relief under the leverage proposal could exceed the capital increase banks had criticized under the earlier Basel endgame plan.
Why the Rule Matters
Capital rules determine how much of a bank’s funding comes from equity and other loss-absorbing resources rather than debt. The more capital a bank holds, the better positioned it is to absorb losses without threatening depositors, counterparties, or the wider financial system. After the 2008 crisis, U.S. regulators built a layered framework that included stress tests, risk-based capital rules, liquidity standards, and leverage requirements.
The leverage ratio became especially important because it does not depend on banks’ internal models or regulatory risk weights. In practice, that means it can catch risks that more tailored systems miss. According to FDIC Vice Chairman Travis Hill in earlier remarks on capital policy, leverage limits remain among the most powerful tools regulators possess to promote a resilient banking system, even as he has also supported recalibrating some rules.
The stakes are high because the rule applies to the biggest and most interconnected institutions in the country. These firms play central roles in payments, lending, securities underwriting, derivatives, and Treasury market functioning. If one of them comes under severe stress, the consequences can spread quickly across the economy, which is why post-crisis reforms focused so heavily on “too big to fail” concerns.
Who Benefits and Who Bears the Risk
If the rule is loosened, the immediate beneficiaries are the largest U.S. banks, which would gain more balance-sheet flexibility and potentially lower capital costs. Banks argue that this could support lending, improve market liquidity, and make it easier to absorb surges in Treasury issuance. That argument has gained traction as federal borrowing remains high and policymakers seek deeper demand and smoother trading in government debt markets.
Potential winners include:
- Large bank holding companies subject to the eSLR
- Treasury dealers and repo market participants
- Investors seeking smoother functioning in government bond markets
Potential risks fall more broadly:
- Taxpayers, if weaker safeguards increase bailout pressure in a future crisis
- Smaller competitors, if the biggest banks gain further structural advantages
- The wider economy, if lower capital buffers amplify losses during stress
Critics, including progressive lawmakers, have framed the proposal as a handout to Wall Street. National Mortgage News reported that Sen. Elizabeth Warren criticized the finalized version of the revised leverage rule in late 2025 as a move that could help trigger a future economic crisis. Supporters reject that characterization and say the change is technical, targeted, and responsive to market structure problems rather than a broad dismantling of post-crisis reform.
The Political and Regulatory Context
The current debate follows years of tension over how far post-2008 safeguards should go. In 2018, Congress passed the Economic Growth, Regulatory Relief, and Consumer Protection Act, which eased parts of Dodd-Frank and raised the threshold for stricter oversight for many banks from $50 billion to $250 billion in assets. That law marked an earlier phase of bipartisan regulatory rollback.
The latest shift comes after the 2023 regional banking turmoil, which exposed supervisory failures but also revived arguments over whether capital rules should be tougher. Some policymakers concluded that the answer was stronger oversight and more capital. Others argued that the regulatory framework had become too complex and that simpler recalibration was needed. The Fed’s 2025 proposal reflects that second view, at least on leverage requirements.
By early 2026, FDIC Chair Travis Hill said regulators had finalized a rule in November 2025 to modify the eSLR for U.S. global systemically important bank holding companies and their depository institution subsidiaries. That means the debate has already moved from proposal to implementation, even as criticism continues over whether Washington has gone too far in easing safeguards.
What Comes Next
The long-term impact will depend on whether the revised rule improves Treasury market resilience without materially increasing systemic risk. If market liquidity improves during periods of stress, supporters will argue the change was justified. If banks use the relief mainly to increase payouts, leverage, or risk-taking, critics will say Washington weakened a core post-crisis defense for little public benefit.
The issue is likely to remain politically charged because it sits at the intersection of Wall Street profitability, government borrowing, and financial stability. It also raises a broader question: should the largest banks receive lighter treatment because they hold more low-risk assets, or should regulators preserve blunt safeguards precisely because crises often emerge from assumptions that certain assets are safe? That question has no easy answer, but it is central to the future of U.S. bank regulation.
Conclusion
Washington’s move to ease leverage requirements for the biggest banks marks a significant turn in U.S. financial regulation. Supporters see a practical fix for Treasury market strains and an outdated rule that has become too restrictive. Opponents see a dangerous weakening of crisis-era protections at a time when the financial system remains highly concentrated. Whether this becomes a smart recalibration or a costly mistake will depend on how the largest banks use the added flexibility — and how the next period of market stress tests the system.
Frequently Asked Questions
What is the supplementary leverage ratio?
It is a capital rule that requires large banks to hold a minimum amount of Tier 1 capital against total leverage exposure, including some off-balance-sheet items. It serves as a simple backstop to risk-based capital rules.
Why do critics say this weakens crisis protections?
Because the leverage ratio is one of the few capital safeguards that does not rely on risk models. Critics argue that lowering it reduces loss-absorbing buffers at the biggest banks and could make the system less resilient in a downturn.
Why do supporters back the change?
Supporters say the current rule discourages banks from holding low-risk assets and from making markets in U.S. Treasurys and repo financing. They argue that easing the rule could improve liquidity in critical funding markets.
Is the $175 billion figure the official size of the rule change?
Not exactly. The Fed’s June 2025 proposal estimated about $13 billion in reduced top-tier capital requirements for affected holding companies. The larger $170 billion to $175 billion figure is used by critics and commentators to describe the broader scale of relief relative to tougher capital plans debated earlier.
Has the rule already been finalized?
Yes. Public reporting and FDIC remarks indicate regulators finalized a revised eSLR rule in November 2025, with implementation beginning in 2026.
