The Trump government is preparing to give a great gift to the Wall Street banks, leaving the strict capital rules imposed after the 2008 financial crisis, according to Politico.

The competent regulators, led by Donald Trump -appointed officials, are preparing a joint proposal to reduce the requirements relating to the so -called supplementary leverage – a basic security “pillow” that ensures that larger banks can absorb possible losses.

The proposal, prepared by the Federal Reserve, the Office of the Coin Auditor (OCC) and the Federal Department of Deposit Insurance (FDIC), is expected to be presented in the coming months, according to sources knowing the discussions.

Finance Minister Scott Bessed described the reduction in capital requirements as a “top priority” and argued that it would make it easier for banks to buy and sell government bonds, thereby supporting the government’s budget policies.

“We are pushing for the reduction or even abolition of the complementary index of leverage,” Roger Stone’s radio broadcast said, adding that such a move could reduce state bond yields of up to 0.6 percentage points over time.

Return to 2018 plans

It is essentially a restart of a similar attempt to have been made under the first Trump government in 2018, but then failed due to disputes between the supervisory authorities. In the midst of the pandemic, in 2020, there was a temporary relief of the rule – excluding government bonds from the index calculation – but ended in March 2021. Fed president, Jerome Powell, has stated that he supports the review of the rule.

The regulators are now considering two scenarios: either the reduction of capital requirement by modification of the mathematical press, or the permanent exclusion of secure assets, such as government bonds, from the calculation of leverage – to the standards of the temporary regime of the pandemic.

Reactions and concerns about stability

This perspective causes a strong reaction from the progressive and supporters of strict regulation. Phillip Basil of Better Markets warned that relaxation of the rule poses significant risks to financial stability.

“The banking sector is using recent turbulence in the bond market as a pretext to achieve a relaxation that has long been seeking,” he said.

Although the government hopes that the changes will support the demand for government bonds, many analysts estimate that the results will be limited. TD Securities’ Gennadiy Goldberg said the effect would be positive but small.