U.S. banking regulators are preparing to ease capital rules for the nation’s largest financial institutions, aiming to give them more room to participate in the vast U.S. Treasury market, Bloomberg reported. The plan under consideration would reduce the enhanced supplementary leverage ratio (eSLR) by up to 1.5 percentage points. For bank holding companies, the ratio could drop from the current 5% to a range between 3.5% and 4.5%. Subsidiary banks, currently held to a 6% requirement, could see similar reductions, according to unnamed sources familiar with the matter cited by Bloomberg.

The Fed’s board voted 5–2 in favor of the notice of proposed rulemaking, issued jointly with the OCC, according to the ABA Banking Journal. The FDIC is expected to consider joining the proposal at a meeting scheduled for Wednesday.

Regulators said the proposed revisions are intended to restore the eSLR’s role as a backstop to risk-based capital requirements, rather than letting it become a binding constraint on bank activity. “The proposal would better tailor our capital requirements for banks to ensure the enhanced supplementary leverage ratio functions as a true backstop—not a primary constraint that limits lending unnecessarily,” said Acting Comptroller of the Currency Rodney Hood, in a statement issued yesterday.

Vice Chair for Supervision Michelle Bowman called the plan “an important first step in balancing the stability of the financial system and Treasury market resilience.”

The proposal does not exclude Treasury securities or Federal Reserve deposits from the eSLR denominator, a measure that was temporarily allowed during the COVID-19 pandemic. However, regulators are soliciting public input on “reasonable alternatives,” including potentially excluding Treasuries held for trading or all Treasury and reserve holdings from the calculation.

Not all Fed board members supported the proposal. Governors Michael Barr and Adrianna Kugler opposed the move. Barr warned the rule could weaken the capital strength of large institutions without meaningfully improving Treasury market resiliency. “This proposal puts our banking system at risk,” he said, while expressing openness to a more modest reform.

The Fed and OCC’s proposal underscores ongoing efforts to balance risk sensitivity with market competitiveness. The ABA continues to advocate for broader leverage ratio reforms, including reducing the Community Bank Leverage Ratio to 8% and excluding U.S. Treasuries from leverage calculations across the board.

The FDIC is scheduled to discuss the rule at its June 26 board meeting.