How much Wall Street might actually benefit from President Donald Trump’s deregulatory agenda is coming into focus.
Last week, federal agencies rolled out plans for overhauling some of the most significant constraints imposed on banks after the 2008 financial crisis: capital requirements that are meant to make lenders better equipped to withstand losses, stress tests that assess firms’ ability to survive another economic calamity and restrictions on leverage.
On April 10, the Federal Reserve proposed making the stress tests less stressful, while tying capital demands much more closely to how banks perform in the annual exams. On April 11, the Fed and Office of the Comptroller of the Currency proposed easing limits on how much banks can rely on borrowed money by tweaking the leverage ratio rule, which is meant to prevent lenders from getting dangerously overextended.
Though compliance gurus are still poring over the details, the moves could aid Trump’s goal of stoking lending by freeing up billions of dollars of capital that banks were forced to amass in the wake of the crisis. But the proposals also indicate that regulators’ overhaul of rules will be done with a scalpel, not a machete. That means much of the post-crisis framework is probably here for the long haul.
“There is not revolutionary change here,” said Michael Alix, a partner at PricewaterhouseCoopers and a former official at the Federal Reserve Bank of New York. “The Fed is saying capital levels are about right, and stress testing is here to stay.”
In the wake of the big news, the lenders’ army of Washington lobbyists have largely been silent, still trying to work out the answers to some key questions:
Who are the biggest winners?
Bank of New York Mellon Corp. and State Street Corp. could take the top prize. The custody banks, which are known for safeguarding assets rather than lending out money, could have their capital demands reduced by as much as a third. They are also poised to get further breaks in their leverage limits should Senate legislation revamping bank rules reach Trump’s desk.
The Fed’s new approach to more closely align capital with the stress tests should be good news for regional banks like SunTrust Banks Inc. and PNC Financial Services Group Inc. Such lenders would still be subject to the exams, but would benefit from from slightly easier tests and also lower capital minimums.
Some of the early assessments from Wall Street banks indicate that it might be a different story for them.
“It’s fair to say that our minimum level of capital including a management buffer would likely be higher under this proposal,” Marianne Lake, JPMorgan Chase & Co.’s chief financial officer, said on an April 13 earnings call.