U.S. set to scrap financial regulations enacted post-2008 financial crisis
He's at it Again! The White House is reportedly gearing up to slash bank regulations, possibly unveiling one of the biggest capital requirement cuts for banks in the last decade. This move, a part of President Donald Trump's deregulation crusade, could drastically alter the banking landscape.
The hot topic? Lowering the Supplementary Leverage Ratio (SLR) for big banks. Introduced post the 2008-2009 crisis, this rule obliges banks to keep a set volume of high-quality assets in relation to their overall debt.
Critics say this norm punishes lenders for stacking up on low-risk assets, curbs trading on the mammoth $29 trillion government bond market, and weakens lending. Greg Baer, CEO of the Bank Policy Institute, contends that penalizing banks for hoarding safe assets like Treasury bonds compromises their ability to maintain market liquidity during panic-stricken economic periods.
Analysts posit that a drop in the SLR could breathe new life into the Treasury market, eventually assisting Donald Trump in meeting his objective of trimming borrowing costs. This could empower banks to snap up more government bonds, according to the report.
As we speak, the eight largest U.S. banks are obliged to maintain a Tier 1 capital ratio of at least 5% of their total debt. In contrast, the requirements are more lenient in foreign lands, ranging from 3.5% to 4.25% for the largest European, Chinese, Canadian, and Japanese banks.
The ripple effects of such an SLR reduction are substantial and far-reaching, touching upon various aspects such as increased lending, market activity, Treasury market stability, regulatory and systemic implications, competition, and, ultimately, economic growth.
Experts cautiously warn that slashing the SLR could make the banking sector more complex and risky. They also argue that addressing broader debt concerns should take precedence over doling out regulatory relief to banks.
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The potential reduction in the Supplementary Leverage Ratio (SLR) for big banks could significantly impact the finance sector, as it may encourage banks to invest more in government bonds, potentially aiding President Donald Trump in reducing borrowing costs. However, this move is met with caution from experts, who warn that such a reduction could make the banking sector more complex and risky, and argue that addressing broader debt concerns should be prioritized over regulatory relief for banks.
