Fed Proposes Easing Leverage Rules for Big Banks

The Federal Reserve has proposed easing the enhanced supplementary leverage ratio (eSLR), a key rule introduced after the 2008 financial crisis that requires the largest U.S. banks to hold capital against all assets, including low-risk ones like U.S. Treasurys. The plan, approved 5-2 by the Fed Board, is intended to lower capital requirements for both bank holding companies and their subsidiaries and to make it easier for banks to support Treasury market liquidity during periods of stress. Fed Chair Jerome Powell argued the change is warranted due to the increased presence of low-risk assets on bank balance sheets and aims to prevent the leverage ratio from discouraging bank participation in Treasury markets. Supporters believe the rollback will help stabilize the Treasury market and reduce the need for Fed intervention during crises. However, Fed governors Adriana Kugler and Michael Barr dissented, warning the move could undermine safeguards and increase systemic risk. The proposal is open for public comment for 60 days.