Deregulation
It's happening; deregulation continues to occur. While not everyone will necessarily agree with the changes that are being made, the reality is that deregulation is here.
This is happening across industries and sectors, including financial institutions and bank regulations. This is a business-friendly move, though some might argue it will create additional risk for the financial system.
For better or worse, what is happening will likely impact corporate profits positively. This is one reason why the stock market has advanced. In addition, potential tax cuts are currently being floated through legislature. Expect more deregulation from the current administration.
A recent article in CNBC highlighted this issue. See below.
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“The Federal Reserve on Wednesday proposed easing a key capital rule that banks say has limited their ability to operate, drawing dissent from at least two officials who say the move could undermine important safeguards.
Known as the enhanced supplementary leverage ratio, the measure regulates the quantity and quality of capital banks should be keeping on their balance sheets. The rule emanated from a post-financial crisis effort to ensure the stability of the nation’s largest banks.
However, in recent years as bank reserves have built and concerns have grown over Treasury market liquidity, Wall Street executives and Fed officials have pushed to roll back the requirements. The regulations targeted treat all capital the same.
“This stark increase in the amount of relatively safe and low-risk assets on bank balance sheets over the past decade or so has resulted in the leverage ratio becoming more binding,” Fed Chair Jerome Powell said in a statement. “Based on this experience, it is prudent for us to reconsider our original approach.”
The Fed board put the proposal open for a 60-day public comment window.
In its draft form, the measure would call for reducing the top-tier capital big banks must hold by 1.4%, or some $13 billion, for holding companies. Subsidiaries would see a larger drop, of $210 billion, which would still be held by the parent bank. The standard applies the same rules to so-called globally systemic important banks as well as their subsidiaries.
The rule would lower capital requirements to range of 3.5% to 4.5% from the current 5%, with subsidiaries put in the same range from a previous level of 6%.”
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