FED TO END RELAXED CAPITAL REQUIREMENTS FOR LARGE U.S. BANKS

The Federal Reserve says it will restore capital requirements for large banks that were relaxed as part of the Fed’s efforts to shore up the financial system during the early days of the pandemic, the Associated Press (AP) reported.

The Fed said it will not extend the relief from what is called the supplementary leverage ratio (SLR) past March 31. The easing of the regulation had been intended to give banks flexibility in which assets they could hold to meet regulatory requirements during the turmoil of the pandemic, when banks were forced to suddenly write down debt worth billions of dollars.

The banking industry had lobbied for an extension of the relief but on Thursday the Fed said that since the requirements were relaxed last year “the Treasury market has stabilized.”

Shares of the large Wall Street banks fell in early trading, with JPMorgan Chase and Wells Fargo down around 3%. The Dow Jones Industrial Average dropped 263 points, or 0.8%. The yield on the 10-year Treasury rose to 1.74% from 1.70%.

The SLR requires large banks to hold capital equal to about 3% of their assets. The required ratio is higher — 5% — for banks that are deemed most important to the overall financial system.

The rule was adopted as part of regulatory reforms after the 2007-2008 global financial crisis and recession. The idea was to ensure that banks kept enough capital on hand to survive market meltdowns.

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