Washington (Reuters) – The Council of Governors of the American Federal Reserve (FED) meets on Wednesday to present a proposal to soften the banks’ equity requirements which could, according to them, facilitate investments in the Treasury Market Market.

The regulator should notably seek to reduce the additional lever ratio (SLR), a capital cushion intended to absorb possible losses even on low -risk assets such as treasury bills.

American banks complain that this requirement reduce their investment capacities due to liquidity to be put aside, especially in times of tensions.

The regulators have already highlighted that the SLR deserved to be examined again in order to lighten the weight of the safe investments of the big banks after having already taken exemption measures during the Pandemic of COVID-19.

“It would be preferable to have a lever ratio which is a support rather than a binding element, and this is what this proposal will do,” said the president of the Fed, Jerome Powell, during a hearing at the Congress on Tuesday.

Jerome Powell notably told Congress that the Fed should offer a new “improved” SLR calculation formula.

If it is expected that the institution is based on a 2018 proposal weighing additional capital requirements according to the risk that each establishment poses for financial stability, the president of the Fed indicated that other methods could be studied, such as the total exemption for treasury bills.

A spokesperson for the Fed refused to comment.

This reduction in banks’ equity requirements opens the way to a banking deregulation expected from the vice-president of the American central bank, Michelle Bowman, appointed by Donald Trump to revive growth by a large deregulation.

This new method of calculating the SLR is a first step in rewriting the “distorted” equity requirements imposed on banks after the 2008 crisis, she defended on Monday.

Senator Elizabeth Warren, a leader of Democrats in the Senate banking commission, expressed her “strong concerns” concerning this plan in a letter addressed to the regulatory authorities on Tuesday.

“If banking agencies abolish this requirement, large banks will go into debt more, pay more money to shareholders and managers, and will make the entire economy run the risk of a new financial crash,” she wrote, believing that there is “no valid reason for your agencies to impose these risks on the Americans”.

(written by Pete Schroeder; Bertrand de Meyer, edited by Jean-Stéphane Brosse)

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