Federal Reserve to End Emergency Capital Relief for Big Banks

WASHINGTON—The Federal Reserve said it was ending a yearlong reprieve that had eased capital requirements for big banks, disappointing Wall Street firms that had lobbied for an extension.

Friday’s decision means banks will lose the temporary ability to exclude Treasurys and deposits held at the central bank from lenders’ so-called supplementary leverage ratio. The ratio measures capital—funds that banks raise from investors, earn through profits and use to absorb losses—as a percentage of loans and other assets. Without the exclusion, Treasurys and deposits count as assets. That will likely force banks to hold more capital or reduce their holdings of those assets, both of which could ripple through markets.

Analysts have been keying on the issue, which is widely viewed on Wall Street as carrying potential implications for markets from bonds to stocks to commodities.

Some analysts had warned that the exemption’s sunset could add to volatility in the $21 trillion market for U.S. government bonds at a time when Wall Street is concerned that heavy debt issuance to pay for federal stimulus spending and other Biden administration priorities would amplify the 2021 increase in Treasury yields.

But the Fed said it would consider a broader revamp of the rules and banks aren’t immediately expected to change their activity, tempering the market reaction Friday. The yield on the 10-year Treasury note was roughly unchanged at midday Friday, as were the major stock indexes.