Wall Street Banks to Reap Billions from Loosened Capital Rules

The recent easing of capital rules in the U.S. is set to offer major financial benefits to banks, potentially freeing up approximately $2.6 trillion for new lending. This significant change stems from a shift in regulatory approach since Donald Trump has returned to the White House. The modifications come as regulators loosen restrictions that were implemented after the 2008 financial crisis, allowing major lenders increased capital to deploy.

Wall Street Banks to Reap Billions from Loosened Capital Rules

Research from Alvarez & Marsal highlights that this regulatory shift may unlock nearly $140 billion in capital across Wall Street. The new guidelines are expected to reduce the core capital requirements for banks by about 14%. Consequently, banks could see their earnings per share rise by approximately 35%, while the return on equity may increase by around 6%.

Impacts on Major U.S. Banks

JPMorgan Chase is anticipated to be the biggest beneficiary, potentially benefiting from an estimated $39 billion in capital relief. This could result in a 31% increase in earnings per share and a 7% boost in return on equity. Other prominent banks, including Citigroup, Bank of America, and Goldman Sachs, are also expected to realize gains as a result of these changes.

Global Repercussions

• The U.S. may witness an increase in capital spending across sectors such as AI, data centers, and energy projects.
• UK banks are predicted to follow suit, with an 8% reduction in capital requirements.
• Conversely, banks in the European Union are projected to face a 1% increase in capital needs.
• Swiss banks could experience the most significant rise in capital requirements at up to 33%.

These developments suggest that U.S. and UK lenders might strengthen their market positions, while Swiss and EU banks could struggle to maintain their competitiveness.

Regulatory Environment

Michelle Bowman, the U.S. Federal Reserve’s vice chair of supervision, has expressed support for the adjustment of rules that she believes have pushed lending into alternative markets. The Federal Reserve and regulatory agencies are preparing to ease requirements regarding the amount of high-quality capital banks must maintain and the nature of annual assessments.

Concerns About Relaxed Regulations

Despite the optimistic outlook for some banks, European officials, including European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey, have cautioned that excessive relaxation of regulations could introduce new risks. The current trajectory indicates a transformative period for global banking, highlighting contrasting paths for U.S. lenders versus their European counterparts.