Beautiful Virgin Islands

Monday, Jul 14, 2025

The Fed is yanking away big banks' 'get out of jail free' card

The Fed is yanking away big banks' 'get out of jail free' card

Federal regulators said Friday they won't extend a Covid relief provision granted to big banks, dashing Wall Street's hopes for an extension.

JPMorgan Chase (JPM), Wells Fargo (WFC) and other big bank stocks retreated on the news, helping to drive the Dow down as much as about 300 points, or 1%. US Treasury yields also crept higher, weighing on the broader markets.

Last spring, when the economy and markets were in chaos, the Federal Reserve handed a sort of "get out of jail free" card to America's big banks: It loosened leverage rules that JPMorgan, Bank of America (BAC) and other large lenders must abide by.

But on Friday, US regulators said they would allow the leverage exemption to expire at the end of the month, explaining that the "temporary change was made to provide flexibility" to banks — allowing them to keep providing credit to families and businesses during the pandemic.

The Fed also announced it will attempt to rework the leverage rule to make sure it remains effective in the current environment.

Elizabeth Warren weighs in


The decision follows pressure from leading Democrats who were worried big banks were using the pandemic as an excuse to weaken post-2008 crisis rules.

Senator Elizabeth Warren applauded Friday's move as the "right decision for keeping our banking system strong," but she also signaled tension ahead.

"Now we need to make sure the giant banks don't try to sneak in a back-door reduction in their capital requirements," the Democrat from Massachusetts said in a tweet. "This is too important."

Big banks such as JP Morgan and Citigroup (C) had been urging regulators to roll over the relief — if not make it permanent. And some Wall Street analysts warned that failure to extend the exemption could cause a destabilizing spike in bond yields if US banks decide to back away from the Treasury market.

Here's how the exemption worked: Last spring the Federal Reserve, FDIC and Office of the Comptroller of the Currency had granted big banks a waiver allowing them to bulk up on ultra-safe US Treasuries and take in a surge of deposits without the usual penalty.

Those penalties are typically levied when banks flout rules around what's known as the supplementary leverage ratio, or SLR. It requires the biggest US banks to hold capital of at least 5% of total assets on — and off — their balance sheets. It's essentially a forced buffer, with the goal of preventing banks from becoming too leveraged.

But with the pandemic raging, the Fed announced on April 1 that it would temporarily exclude US treasuries and deposits held at Fed banks from the SLR calculation.

'Heated' debate set off by stimulus


The moves were aimed at giving banks more lending firepower during the recession and ease strains emerging in the Treasury and repo markets.

"The reason this issue even became so heated is solely because the Treasury is issuing so much debt to fund the spending habits of Congress," Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote in a note to clients Friday.

Boockvar added that the Fed's bond buying program, known as quantitative easing, is simultaneously creating reserves that banks need to absorb.

The Fed acknowledged these challenges, saying it "may need to address the current design and calibration of the SLR over time to prevent strains from developing that could constrain economic growth and undermine financial stability."

The central bank plans to invite public comment on several modifications to the leverage rule, but promised any changes will not "erode the overall strength of bank capital requirements."

This reform process could end up causing some bank reserves being "permanently exempted" from the leverage rule, according to Jaret Seiberg, policy analyst at Cowen Washington Research Group.

"It is odd that big banks get punished because the Fed and Congress want to stimulate the economy. Yet that is the case today," Seiberg wrote.

Here come the buybacks?


Although bank stocks fell on the news Friday, there could be a silver lining for Wall Street: Allowing the relief to expire could ease pressure on the Fed to limit bank dividends and share buybacks.

"This takes out of play the biggest political impediment to the Fed removing all Covid-19 related restrictions on big bank capital distributions," Seiberg wrote.

But leading Democrats are already signaling caution around allowing big banks to return too much cash to shareholders.

Senator Sherrod Brown, the chairman of the Senate Banking Committee, hailed Friday's announcement as a "victory" for financial stability but added: "I will continue to fight for regulators to prioritize the real economy over stock buybacks and dividends."

Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
Air India Pilot’s Mental Health Records Under Scrutiny
Google Secures Windsurf AI Coding Team in $2.4 Billion Licence Deal
Jamie Dimon Warns Europe Is Losing Global Competitiveness and Flags Market Complacency
South African Police Minister Suspended Amid Organised Crime Allegations
Nvidia CEO Claims Chinese Military Reluctance to Use US AI Technology
Hong Kong Advances Digital Asset Strategy to Address Economic Challenges
Australia Rules Out Pre‑commitment of Troops, Reinforces Defence Posture Amid US‑China Tensions
Martha Wells Says Humanity Still Far from True Artificial Intelligence
Nvidia Becomes World’s First Four‑Trillion‑Dollar Company Amid AI Boom
U.S. Resumes Deportations to Third Countries After Supreme Court Ruling
Excavation Begins at Site of Mass Grave for Children at Former Irish Institution
Iranian President Reportedly Injured During Israeli Strike on Secret Facility
EU Delays Retaliatory Tariffs Amid New U.S. Threats on Imports
Trump Defends Attorney General Pam Bondi Amid Epstein Memo Backlash
Renault Shares Drop as CEO Luca de Meo Announces Departure Amid Reports of Move to Kering
Senior Aides for King Charles and Prince Harry Hold Secret Peace Summit
Anti‑Semitism ‘Normalised’ in Middle‑Class Britain, Says Commission Co‑Chair
King Charles Meets David Beckham at Chelsea Flower Show
If the Department is Really About Justice: Ghislaine Maxwell Should Be Freed Now
NYC Candidate Zohran Mamdani’s ‘Antifada’ Remarks Spark National Debate on Political Language and Economic Policy
President Trump Visits Flood-Ravaged Texas, Praises Community Strength and First Responders
From Mystery to Meltdown, Crisis Within the Trump Administration: Epstein Files Ignite A Deepening Rift at the Highest Levels of Government Reveals Chaos, Leaks, and Growing MAGA Backlash
Trump Slams Putin Over War Death Toll, Teases Major Russia Announcement
Reparations argument crushed
Rainmaker CEO Says Cloud Seeding Paused Before Deadly Texas Floods
A 92-year-old woman, who felt she doesn't belong in a nursing home, escaped the death-camp by climbing a gate nearly 8 ft tall
French Journalist Acquitted in Controversial Case Involving Brigitte Macron
Elon Musk’s xAI Targets $200 Billion Valuation in New Fundraising Round
Kraft Heinz Considers Splitting Off Grocery Division Amid Strategic Review
Trump Proposes Supplying Arms to Ukraine Through NATO Allies
EU Proposes New Tax on Large Companies to Boost Budget
Trump Imposes 35% Tariffs on Canadian Imports Amid Trade Tensions
Junior Doctors in the UK Prepare for Five-Day Strike Over Pay Disputes
US Opens First Rare Earth Mine in Over 70 Years in Wyoming
Kurdistan Workers Party Takes Symbolic Step Towards Peace in Northern Iraq
Bitcoin Reaches New Milestone of $116,000
Biden’s Doctor Pleads the Fifth to Avoid Self-Incrimination on President’s Medical Fitness
Grok Chatbot Faces International Backlash for Antisemitic Content
Severe Heatwave Claims 2,300 Lives Across Europe
NVIDIA Achieves Historic Milestone as First Company Valued at $4 Trillion
Declining Beer Consumption Signals Cultural Shift in Germany
Linda Yaccarino Steps Down as CEO of X After Two Years
US Imposes New Tariffs on Brazilian Exports Amid Political Tensions
Azerbaijan and Armenia are on the brink of a historic peace deal.
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Weinstein Victim’s Lawyer Says MeToo Movement Still Strong
U.S. Enacts Sweeping Tax and Spending Legislation Amid Trade Policy Shifts
Football Mourns as Diogo Jota and Brother André Silva Laid to Rest in Portugal
×