Fed Board Splits on $13 Billion Capital Relief Plan for Major Banks

The Federal Reserve has proposed reducing the enhanced supplementary leverage ratio for major banks from 5% to a range of 3.5%-4.5%, a move that WOULD free up $13 billion in capital. Bank subsidiaries stand to benefit even more, with a potential $210 billion reduction in capital requirements, though funds would remain with parent companies.

Fed Chair Jerome Powell defended the plan, citing a "stark increase" in low-risk assets on bank balance sheets over the past decade. "The leverage ratio has become more binding as banks hold more SAFE assets like Treasury securities," Powell stated. The proposal has drawn criticism from two Fed governors who argue freed capital will likely fund shareholder payouts rather than support Treasury markets.

The 60-day comment period begins as the banking sector faces renewed scrutiny. Globally systemically important banks currently maintain 5% capital ratios, a requirement that may be relaxed under the new framework. The debate highlights tensions between regulatory flexibility and financial stability concerns.