US watchdogs are reportedly planning to slash capital rules for banks designed to prevent another 2008-style crash, as Donald Trump’s deregulation drive opens the door to the biggest rollback of post-crisis protections in more than a decade.
The move follows heavy lobbying by the banking industry, with lenders such as JP Morgan and Goldman Sachs having long complained that competition and lending have been hindered by burdensome rules governing the assets they must hold versus their liabilities.
Regulators are expected to put forward the proposals this summer, aimed at cutting the supplementary leverage ratio that requires big banks to hold high-quality capital against risky assets including loans and derivatives, according to the Financial Times, which cited unnamed sources.
The rules came into force after the 2008 financial crisis, as part of efforts to shockproof the banking system and avoid damaging ripple effects that could cause another global economic meltdown. The crisis forced governments to spend billions of dollars bailing out big lenders that took too much risk.
Changes to bank capital rules have been widely expected, with Trump having promised a bonfire of regulation during his second term in office, with plans to slash 10 regulations for every new one added.
While some critics warn it is the wrong time to slash protections, given growing uncertainty over policy overhauls and market volatility, banks seem to have won the ear of policymakers. Lobbyists have long argued that the rules punish them for holding relatively low-risk assets including US debt, known as treasuries, and hinders their ability to provide more loans.
Prospects of a deregulation drive have sparked concerns in some corners of the City of London that the UK could fall behind and become uncompetitive compared with US peers, because of stricter regulation.
The chancellor, Rachel Reeves, in November said regulations put in place after the global financial crisis had “gone too far”, and ordered financial watchdogs to encourage more risk-taking and roll back rules that may have been curbing the growth and competitiveness of City firms.
Months later, the Bank of England announced it was further delaying new capital rules in the UK – known as Basel 3.1 – as it weighed the impact of Trump’s return to the White House.
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The Financial Conduct Authority is looking at how it could ease mortgage rules that were tightened since the financial crisis, in order to boost home ownership amid pressure from the Labour government.
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