FDIC's New Leverage Rules: A Regulatory Shift in U.S. Banking

The FDIC has approved new rules easing leverage requirements for banks, allowing them to set aside less capital for low-risk assets. This policy shift reduces capital for large banks but has drawn criticism for increasing financial risk. The changes align with the Trump administration's growth-focused agenda.

The Federal Deposit Insurance Corporation (FDIC) has sanctioned new final rules aimed at relieving leverage mandates for banks, enabling them to allocate less capital as a buffer for low-risk assets. These rules, part of the "enhanced supplementary leverage ratio" framework, are anticipated to gain approval from other bank regulators soon.

According to an FDIC staff memo, these new regulations are projected to decrease overall capital demands for large global banks by $13 billion, though the reductions are more pronounced for subsidiary depository institutions at an average of 27%. Despite these relaxed rules, overarching holding companies still face stringent capital requirements that prevent increased shareholder dividends.

The relaxation represents the Trump administration's first attempts to loosen the stringent regulations created post-global financial crisis, aiming to foster economic growth. However, this shift has met opposition, with critics maintaining it exposes financial institutions to increased risks unjustifiably. The FDIC has also proposed lowering leverage thresholds for smaller banks, continuing the trend of regulatory easing.

(With inputs from agencies.)