GlobalData
Thu, Jul 10, 2025, 2:08 PM 4 min read
The big four already dominate the US’s banking industry – they swallow 44% of the entire sector’s profits, have masses of capital to put toward technology and automation and have powerful connections among the country’s top policymakers to ensure legislation goes their way. Now, it seems they’ll soon have another string in their bow, and all at the expense of the US’s community banks.
What I’m talking about here are plans to roll back capital requirements for these industry heavyweights. Ever since Donald Trump headed back into the Oval Office, Wall Street has been expecting to feel the grip of financial regulation slacken – and those predictions are now coming to fruition.
It’s coming at the hands of Jerome Powell, who is gearing up to slash the enhanced supplementary leverage ratio. It requires the biggest banks to reserve a specified amount of capital based on their total leverage exposure, regardless of the risk weights of their assets.
It’s a shift that would free up a colossal $210bn in capital requirements, supercharging lending capacity and tech investment for the banks that already tower over their smaller competition.
Look, I can understand elements of the Fed’s argument. The key motivation here is to ignite the Treasury market, which, let’s face it, does need all the help it can get.
Under the status quo, banks are deterred from buying up treasuries. They’re hesitant to add low-risk assets to their total leverage exposure, given that it disproportionately drives their capital requirements up. On the surface, I understand why Powell wants to incentivise the titans of the sector to increase their positions in this market, but the impact on smaller banks is a catastrophic consequence that, for the moment, is flying dangerously under the radar.
By effectively handing over $210bn to the strongest banks in the country, the Fed will massively expand their lending capacity and send ripple effects across the entire banking ecosystem.
The implications would be twofold. First, the big four would find themselves with masses of capital, sparking a race to the bottom on loan rates. They’ll look to outcompete each other, driving loan rates lower and lower to attract as many borrowers as possible.
Smaller banks have always offered impressively competitive fees and rates – it’s been one of their strongest competitive advantages. In 2024, larger credit card issuers were far more likely to charge annual fees and higher interest rates, regardless of an individual’s credit score, but as larger banks battle to outdo each other, they’ll undoubtedly take the shine off smaller institutions’ competitive offers.
