United States, Eases Capital Regulations for Large Banks...Changes Following Silicon Valley Bank Collapse

U.S. banking regulators are rolling back the enhanced capital regulation measures for large banks that were pushed after the collapse of Silicon Valley Bank in 2023 and are preparing a more relaxed capital regulation plan than the current rules. This regulatory easing is a decision reflecting industry demands and is expected to be officially announced next week.

The collapse of Silicon Valley Bank in 2023 raised concerns about the stability of the banking sector. In response, the Federal Reserve had proposed to increase large bank capital requirements by about 20% through strong regulation, but this faced strong opposition from major Wall Street banks. As a result, the vice chair responsible for financial regulation shifted from advocating for stricter oversight to supporting a more relaxed approach, and the direction of regulatory reform was adjusted accordingly.

On that day, Vice Chair Michelle Bowman explained during the introduction of the new regulatory reform plan that some large banks’ capital requirements might be slightly increased, but overall, the capital burden would be eased. The plan acknowledges that the capital expansion policies implemented after the 2008 financial crisis had unintended side effects and points out that excessive regulation of low-risk activities has actually constrained credit supply.

However, there are concerns that this regulatory relaxation could increase systemic vulnerabilities. Senator Elizabeth Warren criticized the plan as overly favoring large banks and forgetting the lessons of past financial crises.

The regulatory reform is expected to be voted on at the Federal Open Market Committee meeting on the 17th, signaling a change in the regulatory environment for the banking industry. This shift could alter the competitive landscape among banks and may pose a long-term risk of testing financial market stability again.