The US Watchdog is reportedly planning to cut down bank capital rules designed to prevent the 2008 style crash, as Donald Trump’s deregulation drive opens the door to the biggest rollback of post-crisis protection for over a decade.
The move follows heavy lobbying by the banking industry, and lenders such as JP Morgan and Goldman Sachs complained that competition and the burdensome rules governing assets that lending must hold against liability.
This summer, regulators are expected to propose a proposal this summer, aimed at reducing the supplemental leverage ratio that requires large banks to hold large capital for risky assets, including loans and derivatives, according to the Financial Times, which cited an unknown source.
The rules came into effect after the 2008 financial crisis as part of an effort to avoid ripple effects that could shock the banking system and cause another global economic meltdown. The crisis forced the government to spend billions of dollars to bail out big lenders who took too many risks.
Changes to bank capital rules are widely anticipated, with Trump pledging a bonfire for regulatory during his two terms of office and plans to cut 10 new regulations in the new regulations that have been added.
Although some critics have warned that cutting protections is the wrong time given the growing uncertainty around policy overhauls and market volatility, banks seem to have won the ears of policy makers. Lobbyists have long argued that rules punish their ability to provide more loans for holding relatively low-risk assets, including US debts known as the Treasury Department.
The prospect of a deregulation drive has sparked concerns in several corners of London that the UK could fall behind and become less competitive compared to its US peers due to stricter regulations.
Prime Minister Rachel Reeves said in November that restrictions were introduced after the global financial crisis “goes too far” and ordered financial observers to encourage risk-taking and rollback rules that could be thwarting the growth and competitiveness of municipal companies.
Months later, the Bank of England announced it would further delay the new UK capital rules (known as Basel 3.1) as it weighed the impact of Trump’s return to the White House.
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