Fed Unveils Major Deregulation Push: Capital Rule Easing & Risk Supervision Shift

In late 2025, the Fed has charted a notable shift in financial regulation that materially eases constraints imposed after the 2008 crisis. Among the most consequential is the easing of the Enhanced Supplementary Leverage Ratio (eSLR) for large, systemically important banking organizations. Under the new final rule issued November 25, 2025, these banks and their depository subsidiaries are permitted to reduce certain leverage capital requirements—cutting the eSLR at the holding company level to range between 3.5%–4.5% (from 5%), with subsidiaries also brought into this range (from 6%)—while still serving as a backstop to risk-based capital requirements.[0search0][0news16]

This capital rule change is intended to reduce the disincentives banks face when holding low-risk assets, like U.S. Treasuries, that form essential parts of the Treasury market’s functionality. Proponents argue this aids market liquidity and reduces demands for government intervention during stress. Critics, including Fed Governor Michael Barr and Adriana Kugler, warn it may reduce banks’ cushion in crisis scenarios and shift risk to the Deposit Insurance Fund. [0search0]

Alongside capital relief, supervisory philosophy is shifting. New guidelines released in November 2025 direct examiners to focus on material financial risks—unsound business practices, asset quality, and balance sheet exposures—while de-emphasizing process-oriented oversight, reputational risk assessments, and documentation burdens. This comes with a roughly 30% cut in regulatory staff via attrition. These changes are championed by the industry, seen as long-sought after simplifications, though dissenters argue it may weaken early detection of emerging risks.

Politically, regulatory change is being reinforced through broader institutional shifts. Treasury Secretary Scott Bessent has repositioned FSOC to spotlight regulatory burden reduction, address overlaps, and integrate oversight of emerging sectors like AI. These moves align with the Trump administration’s deregulatory agenda. Powerful Republicans support the adjustments; progressive critics like Sen. Warren warn they could increase systemic fragility.

Strategic implications for banks and investors are multifold. Large banks stand to improve returns on low-risk asset holdings and reduce capital carry costs. Treasury market liquidity may strengthen, assuming banks reinvest freed capital. However, with supervision staff reductions and lighter oversight in some domains, risk modeling assumptions may fail to capture adverse shocks – particularly around subsidiaries, housing, or consumer finance sectors. Open questions remain around how quickly and comprehensively these rules will be adopted, how they impact non-bank players, whether international regulatory harmonization (e.g. Basel) pressures will reassert, and how rating agencies and markets respond to shifts in risk posture.