US Capital Plan Favours Wall Street Banks with Large Trading Units

• Goldman Sachs and Morgan Stanley could gain the most from changes to the GSIB surcharge calculation that reduce the impact of short-term wholesale funding reliance, which these trading houses use more heavily than deposit-based rivals
• Regional banks under $100 billion in assets would see capital requirements fall 7.8%, while analysts estimate large U.S. banks are holding around $175 billion in excess capital that could be released for lending, buybacks, and dividends
• Banks have 90 days to comment on the proposal, and analysts expect the previous 'coalition' of Wall Street banks to fracture as different institutions lobby for further revisions favoring their specific business models

Summary

The Federal Reserve's revised capital requirements plan released March 20 marks a significant turnaround for major U.S. banks, reducing capital requirements by 4.8% overall—far less than the proposed 20% increase from 2023. This will free up billions for lending, dividends, and stock buybacks.

Key Winners: Trading-focused institutions Goldman Sachs and Morgan Stanley stand to benefit most, despite their trading operations being the original targets of stricter regulation. This advantage stems from changes to the GSIB (Global Systemically Important Bank) surcharge calculation, particularly reduced impact from wholesale funding reliance—an area where these firms differ significantly from deposit-heavy rivals like JPMorgan and Citibank.

Capital Impact by Bank Size:

• Largest banks (8 systemically important institutions): 4.8% reduction
• Large regional banks (PNC, Truist): 5.2% reduction
• Banks under $100 billion: 7.8% reduction

Market Implications: Morgan Stanley analysts estimate large U.S. banks currently hold approximately $175 billion in excess capital built up during regulatory uncertainty. This capital could be released through increased lending, capital markets activity, and buybacks.

Regulatory Outlook: Banks have 90 days to comment on the proposal and are expected to lobby for further reductions. The Trump administration supports relaxed requirements to boost lending and economic growth, though critics warn this weakens financial safeguards amid heightened geopolitical and market risks.

Industry Division: Analysts predict the unified banking coalition that fought stricter rules may fragment as different institutions seek revisions favoring their specific business models, with trading houses and traditional lenders potentially diverging in their interests.