Seventeen years after the global financial crisis, banking regulators are easing capital requirements to support lenders and encourage economic activity. In the United States, measures under the Trump administration aim to reduce the amount of capital banks must hold, a move some experts warn could weaken safeguards designed to protect financial systems. These changes come as analysts raise concerns about potential market bubbles and financial stability risks.
Globally, banks are expected to follow the Basel regulatory framework established after the 2008 crisis. The framework sets minimum capital standards to ensure banks can withstand losses during economic downturns, creating a level playing field internationally. In practice, however, national approaches differ. The European Central Bank (ECB) and the Bank of England (BoE) have delayed certain aspects of the latest Basel rules, waiting to see how the United States proceeds.
On paper, capital requirements across the United States, the euro zone, and Britain appear similar. The Federal Reserve requires a core equity tier-1 ratio (CET1) between 10.9 and 11.8 percent for major US banks such as JPMorgan, Citi, and Goldman Sachs. The ECB sets an average CET1 of 11.2 percent for institutions including Deutsche Bank, Santander, and BNP Paribas, plus an additional bank-specific requirement of roughly 1.2 percent. The BoE has lowered its minimum benchmark ratio to about 11 percent, excluding additional firm-specific requirements that can reach 2.5 percent.
Despite these requirements, major banks maintain higher capital buffers than regulators mandate, a practice meant to reassure investors and reduce regulatory pressure. Experts caution, however, that comparing simple ratios across countries can be misleading. US banks cannot use internal models to determine risk weightings, which often results in stricter constraints. Differences in mortgage practices also influence calculations, with US lenders offloading mortgages to government-backed agencies while European and British banks retain them on their balance sheets.
Regulators appointed by President Trump are reviewing and revising existing rules, including leverage ratios, surcharges for global systemically important banks, and the Basel III Endgame requirements. Planned changes to the Federal Reserve’s annual stress tests could reduce the capital banks must hold against hypothetical losses, potentially freeing up an estimated $1 trillion in lending capacity. Analysts note, however, that banks may not necessarily increase lending, with some opting to boost shareholder payouts or fund acquisitions.
European and British regulators are also easing some requirements, but changes are modest. The ECB announced plans to simplify its rule book while maintaining capital levels, and the BoE cut its system-wide capital benchmark by one percentage point, reviewing leverage ratios for the first time since the financial crisis. In Japan, regulators have implemented the finalized Basel III framework for its three megabanks.
Experts say capital requirements alone do not determine banking safety. Enforcement practices and local rules, such as Britain’s ring-fencing of retail operations, remain critical. Economist Enrico Perotti of the University of Amsterdam said the current US approach emphasizes reducing regulatory scrutiny over numerical targets, signaling a broader shift in supervisory priorities.
