Fed to Ease Bank Leverage Rules, Potentially Unleashing $1.85 Trillion in Capital

The Federal Reserve has approved a controversial 5-2 vote proposal to relax leverage requirements for global systemically important banks (GSIBs), a move analysts say could significantly impact financial markets.

Key Provisions

• Capital Relief: Morgan Stanley estimates $185B immediate capital release

• Balance Sheet Capacity: Unlocks ~$6T in additional balance sheet capacity

• Risk-Weighting Changes: Adjusts Enhanced Supplementary Leverage Ratio (eSLR) to better reflect:

✓ Banks' global systemic roles

✓ Low-risk asset classifications (especially Treasuries)

Market Implications

📈 Bank Stocks Rally: JPMorgan, Citi shares up 2-3% in pre-market

📉 Treasury Yields Dip: Expected improved bank demand for U.S. debt

💵 Liquidity Boost: Could ease recent funding market strains

Controversy:

-Two dissenting votes warn of "return to 2019 repo market fragility"

-Proposal open for public comment until September 30

"This recalibrates capital rules without compromising safety" — Fed Vice Chair Barr