Major U.S. banks are expressing unprecedented optimism about potential regulatory relief as Trump administration officials work to fundamentally revamp capital requirements that have constrained lending and profitability for years. Industry executives and regulatory sources indicate that sweeping changes could significantly reduce capital levels for the nation’s largest financial institutions. This regulatory shift represents a dramatic departure from previous policies, potentially freeing billions of dollars for lending, trading, dividends, and share buybacks across the banking sector.
U.S. Fed designs major cutback of capital requirements
The Fed’s proposals are aimed at minimizing capital charges imposed on the world’s hazardous banks, minimizing the effects of the most significant constraints on their capital structure, and completely reforming the yearly stress testing process. All these proposals are expected to significantly contribute to the capital base of the largest banks within the US, including JPMorgan Chase & Co., Bank of America Corp., and Citigroup Inc., remaining the same or even declining.
As reported by executives and regulatory officials, the proposed changes seek to simplify capital requirements that have come under criticism regarding being too onerous and set improperly. This marks part of the overall agenda of the administration of President Donald Trump regarding the reduction of regulation and the subsequent growth of the financial sector, which could see major banks’ operations drastically affected.
Some of the major regulatory changes under discussion include the following:
- Cutbacks on capital charges on dangerous global banking institutions
- Reduction of major leverage constraints that affect banking operations
- An entire overhaul of the yearly stress testing process and procedures
- Simplification of complex capital requirement calculations and reporting requirements
Citigroup is positioned to benefit significantly from regulatory changes
Citigroup, considered the world’s leading banking group, managed its business of handling $1.284 trillion of current deposits and $694.5 billion of current loans at the close of the financial year of 2024. The financial giant’s operations take place under the structure of its branches that stretch across the world, with a presence of 1,959 branches. Despite the enthusiasm within the banking sector, there are very serious reservations about the potential hazards that the reduction of capital requirements may pose to the particular financial system.
Though the specific effects of the new regulations on the operations of Citigroup are yet uncertain, the potential reduction of capital requirements could potentially save the company billions of dollars that could possibly go into corporate expansions. This new regulatory environment will enable the company to increase its loans, trading activity, dividend payout capacity, and even aggressive share buybacks that directly affect the shareholders of the company.
Trump appointees propel deregulatory agenda at banking agencies
Travis Hill, chosen by Trump as the new head of the FDIC, has formerly complained of the tight capital requirements being placed on bigger banks. His appointment as the new head of the FDIC seems well-received by the Administration and has been referred to the U.S. Senate’s Committee on Banking, Housing, and Urban Affairs. His appointment process indeed awaits proceedings at this committee.
With the potential of new management at the reins, the FDIC recently started looking into reducing oversight regulation, including efforts at reversing the regulatory changes implemented during the Biden administration that increased its scrutiny of major mergers between banks. The Office of the Comptroller of the Currency and the FDIC, currently drafting changes under the Basel Accords, have refused comment on these proposed changes.
The new Basel draft is expected to be unveiled by early 2026; however, regulatory debate continues on this issue, with the possibility of Democrats on the board of the Fed having reservations over new reforms deemed too pro-bank capital policies. Though the full effects of this situation remain uncertain at this point, this issue could potentially affect the U.S. banking sector significantly.
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