Washington prepares $175B break for big banks — weakening protections against financial crisis

US regulators are signaling a significant shift in banking policy, preparing to implement a softer rewrite of the long-disputed Basel III endgame rules. This proposed change could result in capital requirements for large banks remaining roughly flat or even slightly decreasing, potentially freeing up over $175 billion in excess capital across the industry. Surcharges for the largest global banks may also see a reduction of approximately 10%.

Shift from Previous Proposals

This new direction marks a notable departure from the stricter proposals put forth less than three years ago. A previous draft in 2023, under a different regulatory leadership, aimed to increase capital requirements for the biggest banks by about 19%. Banks had argued that such measures would increase credit costs, diminish market-making capabilities, and shift activity outside the regulated system. Conversely, critics contended that thicker capital buffers were necessary due to years of easy money and concentrated risks.

Liquidity Rule Revisions

Alongside capital rule adjustments, regulators are also re-examining liquidity requirements. Treasury officials have indicated a willingness to grant banks regulatory credit for collateral already prepositioned at the Federal Reserve's discount window. This means that a bank's capacity to borrow emergency cash could be recognized as usable liquidity, potentially reducing the need for banks to hold as much