Wall Street bank capital to fall 4.8% under new rules, in win for industry.

Wall Street bank capital would fall 4.8% under softened rules regulators unveiled ⁠on ⁠Thursday, freeing up billions of dollars for lending, dividends and ⁠share buybacks in a stunning victory for the industry, which had faced double-digit hikes under a previous plan laid out in 2023. 

The ​sweeping proposal changes to how banks calculate funds they put aside to absorb losses should be a boon for Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citibank and other lenders that have fought to overhaul U.S. capital ‌rules, although analysts warned some will benefit more than ‌others.

Capital levels at larger regional banks such as PNC and Truist would fall by 5.2%, the Federal Reserve said, while banks with less than $100 billion in assets would enjoy a 7.8% decline. 

In a statement, ⁠Fed officials said the ⁠changes, which include a rewrite of the contentious “Basel III” draft and adjustments to the “GSIB surcharge” would enhance and streamline ​the capital framework while ensuring U.S. banks “continue to be safe, sound, and able to support the U.S. economy.”

Critics, meanwhile, say they will weaken financial system safeguards just as geopolitical and private credit risks are surging, with some major U.S. banks tightening lending while funds have capped withdrawals.

Spokespeople for the banks did not immediately provide comment or declined to comment.

The Fed, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency approved ​the proposals Thursday, kicking off another potentially frenetic round of industry lobbying as banks gain clarity over how they will fare versus their peers. 

The capital overhaul, which is being ⁠led ⁠by Fed Vice Chair for Supervision Michelle ⁠Bowman, follows a years-long Wall Street bank ​campaign to ease rules introduced after the 2008 financial crisis which they say are excessive and are stifling lending and the economy. 

Wall Street bank lobby groups, which ​have led the fight, issued a cool response on Thursday, ⁠noting the draft rules were an “important step forward” and that the industry “will carefully review the proposals and expect to provide feedback.”

Estimates on how much money could be freed up vary.

The eight most interconnected global U.S. banks alone hold around $1 trillion in combined capital. Their required capital could fall around $20 billion, according to Fed estimates, although Democratic Fed governor Michael Barr, who opposed the changes, estimated that figure would be closer to $60 billion when additional policy changes are also considered.

Analysts at Morgan Stanley this month wrote that those lenders along with four other big banks are currently holding around $175 billion in excess capital due to ⁠years of uncertainty over where the U.S. rules would land. They could start releasing that via lending, capital markets activity, and buybacks, the ⁠analysts wrote.