There was a time when the GOP supported tough bank leverage ratios. They were a centerpiece of the GOP alternative to Dodd-Frank in 2010. Republican Stimulus Package May Come With a Benefit for Big Banks https://www.nytimes.com/2020/07/27/business/bank-regulations-rollback-stimulus-bill.html?smid=tw-share

If the Fed is pushing this, Congress should push back. It is an unnecessary change and will weaken bank capital minimum requirements at a time when banks need a strong capital base to support the economy during the pandemic.

It’s insane that Congress would give regulators free license to reduce capital minimums below where they were in 2010. And insane that the Fed would even ask.

IFthe problem is banks need extra capacity to buy Treasuries and take customer deposits, then there are a number of options to address it. Congress does not need to default to the solution on big banks’ lobbying wish list.

First, stop dividend payments. FDIC Insured banks paid out $30B in dividends in 1Q. Retaining that capital would have expanded balance sheet capacity by nearly a half trillion, without weakening capital requirements.

Or, the regulators could temporarily remove Treasuries and reserve deposits in calculating the leverage ratio, but also RAISE the ratio. This approach would not reduce total minimum capital and ensure there is enough capital to cover the risk assets still in the calculation.

Or the regulators could temporarily exclude from leverage capital requirements increases in deposit and Tresury balances above where they were pre-pandemic. This would surgically address the problem they want to fix, without huge decreases in capital minimums.

Importantly, any changes regulators say they need to make DO NOT require legislation if done on a truly temporary basis. Congress has more important things to do in responding to this pandemic than letting big banks boost their profits by weakening capital rules.