Wall Street’s biggest trade groups sent a letter to US banking regulators on June 17, asking them to go further in relaxing Basel capital rules. The request comes just three months after regulators proposed cutting capital requirements for large banks by roughly 4.8% to 5%.
What Wall Street actually wants
The letter focuses specifically on the market risk components of the Basel framework. These are the rules that dictate how much capital banks need to set aside to cover potential losses from their trading operations.
Trade bodies estimate that the proposed rules, as currently drafted, could increase capital requirements for trading activities by somewhere between 30% and 89%. That’s a wide range, but even the low end represents a massive jump in how much money banks would need to keep locked up rather than deployed in markets.
The Treasury market is a particular point of anxiety. It’s the bedrock of the global financial system, the place where the US government borrows money and where interest rates get set. Less liquidity there doesn’t just affect banks. It ripples through mortgages, corporate borrowing, and pretty much every corner of finance.
