Wall Street Banks Poised to Benefit from Trump-Era Regulatory Rollback on Capital Rules

BY COMFORT OGBONNA

Wall Street banks are set to gain as President Donald Trump’s regulatory team prepares to release a softened version of previously proposed capital rules this week, though analysts warn that technical and political hurdles could still complicate the process.

Federal Reserve Vice Chair for Supervision Michelle Bowman said last week that big banks’ capital requirements will fall slightly under the new proposals, a major shift from the original 2023 draft that would have imposed double-digit increases on many large lenders. The revised framework, covering the so-called “Basel” international standards and the Global Systemically Important Bank (GSIB) surcharge, recalibrates how banks calculate the funds they must set aside to absorb potential losses.

The changes are the culmination of a years-long campaign by Wall Street banks to ease post-2008 financial crisis rules, which the industry argued were restricting economic growth. Critics counter that the rollbacks could weaken safeguards at a time when geopolitical tensions and private credit risks are rising.

Industry sources say finalizing the proposals could take most of the year, as banks scrutinize hundreds or even thousands of pages of technical documentation and regulators navigate potential complications, including a transition to a new Fed chair and White House review. Some banks may push for additional adjustments depending on how the revisions affect their specific operations.

“There’s just going to be so much to go over, and some of it is highly technical,” said Ian Katz, managing director at Capital Alpha Partners. Analysts at Truist Securities forecast that final approval may not come until early 2027. Spokespersons for the Fed, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency declined to comment.

Key Changes and Industry Reaction

The Basel rules, designed to set international capital standards, focus on how banks allocate funds to cover credit, market, and operational risks. Bowman’s predecessor, Democrat Michael Barr, introduced the first draft in July 2023, citing the collapse of Silicon Valley Bank as justification for significant capital hikes—potentially as much as 20% for banks with over $100 billion in assets.

Lenders pushed back forcefully, arguing that their existing capital levels were sufficient and threatening legal action. The Trump administration largely sided with the industry, and Bowman said last week the revised rules better align requirements with actual risks.

The new draft removes several provisions banks had opposed, including a requirement to use the stricter of two methods to calculate risk capital, which had disproportionately affected Wall Street trading giants. Fee-based businesses like credit cards will also face lighter operational risk rules.

Still, some contentious issues remain. Banks are seeking clarity on the use of internal models for assessing market risks versus regulator-prescribed models, and how much capital must be held against non-publicly listed securities. The GSIB surcharge, which applies to the eight riskiest U.S. banks—including JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley—will be adjusted to update economic inputs and short-term funding risk calculations, with some banks expected to benefit more than others.

Political and Procedural Challenges

The proposals must still navigate political and procedural hurdles. Banks have 90 days to provide feedback, after which regulators must agree on any revisions. Democratic members of the Fed board could object if they believe the final rule is too lenient. The new chair, Kevin Warsh—a Trump appointee—has generally favored lighter regulatory oversight but has not publicly commented on the draft changes. The final rule will also require review by the White House Budget Office under a 2025 Trump executive order.

Despite these potential obstacles, experts say coordination between banks and regulators under the current administration makes approval more likely than under previous drafts. “With banks and regulators on the same side this time around, it should be much easier to reach the finish line,” said Jeremy Kress, a professor at the University of Michigan.

The regulatory rollout highlights a continued Trump-era push to ease post-crisis financial rules for big banks, balancing industry relief with ongoing concerns about systemic risks and market stability.