Wall Street banks with large trading units may be biggest winners under US capital plan

• Capital requirements would fall 4.8% at the largest banks, 5.2% at large regionals like PNC and Truist, and 7.8% at banks below $100 billion in assets, freeing up capital for lending, dividends, and buybacks
• Goldman Sachs and Morgan Stanley could be the 'purest winners' due to reduced penalties for reliance on short-term wholesale funding in the GSIB surcharge calculation, a key change from 2023 rules
• Large U.S. banks currently hold approximately $175 billion in excess capital that could be released, though critics warn the relaxed requirements weaken financial safeguards amid geopolitical and economic uncertainty

Market Summary: Wall Street Banks to Benefit from Reduced Capital Requirements

Key Development:

The Federal Reserve released draft rules on Thursday that would reduce capital requirements for the largest U.S. banks by 4.8%, a significant reversal from the 2023 proposal that would have increased capital by up to 20%. The Basel rules would increase big bank capital by only 1.4%, offset by changes to the GSIB (systemically important global banks) surcharge.

Winners and Losers:

Trading-heavy institutions like Goldman Sachs and Morgan Stanley are positioned as the biggest winners due to changes in how short-term wholesale funding is calculated in the GSIB surcharge. These banks rely more heavily on wholesale funding compared to deposit-heavy rivals like JPMorgan Chase and Citibank.

Regional banks will also benefit significantly:

• Large regionals (PNC, Truist): 5.2% capital reduction
• Banks under $100 billion in assets: 7.8% capital reduction

Financial Implications:

Morgan Stanley analysts estimate large U.S. banks currently hold approximately $175 billion in excess capital. The reduced requirements could free up billions for lending, dividends, and share buybacks.

Market Dynamics:

The changes may fracture the previously unified banking coalition that fought the original proposal. Analysts warn "cracks in the coalition may appear" as different banks lobby for favorable treatment during the 90-day comment period.

Policy Context:

The Trump administration supports relaxing capital requirements to boost lending and economic growth. However, critics warn this weakens financial safeguards amid rising geopolitical and economic uncertainties, with some banks already tightening lending and funds capping withdrawals.