Washington wants to weaken bank rules; not every regulator agrees

Bank regulators are on the cusp of weakening a rule put in place to prevent the nation’s biggest banks from causing another financial crisis, marking the first significant attempt by policymakers to fulfill President Donald Trump’s promised regulatory rollback.

The effort is causing friction among regulators, who broadly agree that some post-crisis rules need to be revised but disagree about how far Washington should go in changing them. The debate is expected to be the first of many as financial regulators begin changing post-crisis rules through actions that do not require congressional approval.

In recent weeks, federal banking regulators have proposed softening a requirement that puts a hard limit on how much the largest banks can borrow. The rule, known as the supplementary leverage ratio, requires that banks prepare for a disaster by maintaining a certain level of capital on their balance sheets based on their total size.

Banks have long complained that the rule is too restrictive and makes it harder for them to do business, including lending, in important markets. They have asserted that the ratio is too blunt of an instrument and often the strictest of the various capital requirements that were put in place after the crisis.

James P. Gorman, CEO of Morgan Stanley, summed up this view on a conference call last week, saying, “Our constraint has been the leverage ratio.”

Regulators appear ready to agree. The Federal Reserve, along with the Office of the Comptroller of the Currency, has proposed changing the capital requirement to make it “more closely tailored to each firm.” That could wind up lowering the amount of capital that big banks must maintain.

The change was not supported by another bank regulator, the Federal Deposit Insurance Corp., which is headed by Martin J. Gruenberg, an Obama administration appointee. It also prompted a “no” vote from one of the Fed’s three sitting governors, Lael Brainard, also an Obama administration appointee, who recently said it was too soon to lower capital requirements for the biggest banks.

“Some observers contend that current capital requirements are too onerous and are choking off credit,” Brainard said last Thursday in a broad speech about bank regulation. “But the evidence suggests otherwise: U.S. bank lending has been healthy over recent years and profits are