On May 19, 2025, the Trump administration announced plans to revise banking regulations established after the 2008 financial crisis, focusing on the supplementary leverage ratio (SLR). This proposed change aims to adjust capital requirements for major banks by potentially excluding low-risk assets, such as U.S. Treasuries and central bank deposits, from the SLR calculation. The administration asserts that this adjustment will enhance liquidity in Treasury markets and bolster banks' trading capacities.

The SLR, introduced in 2014 as part of the Basel III reforms, mandates that large banks maintain a minimum amount of high-quality capital relative to their total leverage, including off-balance sheet exposures. This measure was implemented to prevent excessive leverage and strengthen the resilience of the banking system following the 2008 financial crisis.

Under the proposed changes, by excluding low-risk assets from the SLR calculation, banks could potentially free up approximately $2 trillion on their balance sheets. This would enable increased lending and trading activities, aligning with the administration's broader deregulatory agenda. The reforms are expected to be introduced by the summer of 2025.

Financial sector leaders and policymakers supporting the changes believe they could lower borrowing costs and stimulate economic activity. They argue that the current SLR rules hinder banks' ability to manage trading in the $29 trillion government debt market. Treasury Secretary Scott Bessent has labeled the reform a high priority, and Federal Reserve Chair Jerome Powell has indicated that it is time to revisit the rule.

However, critics express concern that reducing capital requirements may compromise the stability of the financial system, particularly during periods of economic uncertainty. They warn that easing these regulations could increase financial system risk, especially amid current market volatility.

This policy shift aligns with the administration's broader deregulatory agenda. In February 2025, President Trump signed Executive Order 14215, titled "Ensuring Accountability for All Agencies," which directs independent agencies to regularly consult with the White House and submit significant regulations for review before publication. This order aims to increase presidential control over independent federal agencies, including those overseeing the banking sector.

The SLR was introduced in the aftermath of the 2008 financial crisis to prevent excessive leverage and enhance the resilience of the banking system. The current proposal to modify the SLR represents the most significant adjustment to bank capital requirements in over a decade. While similar reforms have been considered in the past, the scale and timing of the current proposal are notable, especially given the recent market volatility and economic uncertainty.

Easing capital requirements could increase the risk of financial instability, particularly if banks engage in riskier activities without sufficient capital buffers. Proponents argue that the changes could enhance liquidity in the Treasury markets, potentially leading to lower borrowing costs for the government and consumers. By freeing up capital, banks may be able to increase lending to businesses and consumers, potentially stimulating economic growth.

The Trump administration's proposal to modify the supplementary leverage ratio signifies a substantial shift in banking regulation. While aligning with a broader deregulatory agenda, the move has sparked debate among stakeholders regarding the balance between deregulation and financial system resilience. The outcome of this policy change will have lasting implications for financial stability, market liquidity, and economic growth.