Federal regulators unveiled a sweeping proposal Thursday that would allow America’s largest banks to hold billions of dollars less in capital reserves than currently required.

The move represents a significant victory for Wall Street under the second Trump administration, with other mortgage-related groups praising the proposed regulatory shift as a crucial win for market stability and economic growth.

In rule changes suggested by the Federal Reserve, in conjunction with the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, the largest U.S. banks would be allowed to hold approximately 2.4% less capital, which amounts to roughly $20 billion, according to a Wall Street Journal analysis. Based on certain stress-testing conditions identified by the Fed, it could rise to as much as 4.8%.

The relief is not limited to financial giants, as midsize and smaller banks would also experience significant reductions, seeing their capital buffers decrease by 3% and 7.8%, respectively.

The proposal passed by a 6-1 vote by the Fed’s Board of Governors, with Fed Chair Jerome Powell among those in favor of the changes.

“Financial regulations put into place since the global financial crisis substantially increased the banking system’s resilience,” Powell said Thursday in a prepared statement. “However, it is prudent to reexamine our regulatory frameworks at regular intervals and strive to modernize our rules to help maintain international standards in a way that is appropriate for the U.S. banking system.” 

Senate Banking Committee Chairman Tim Scott, R-S.C., called the proposal “a step in the right direction” in a statement released Thursday.

“The Biden administration’s plan would have made it harder to get a mortgage, harder to start a business, and more expensive to make ends meet,” Scott stated. “That is the wrong direction when families are already feeling squeezed.”

The broader financial sector and housing finance industry were quick to voice their support for the Fed’s proposals. The Mortgage Bankers Association (MBA) issued a public statement supporting the plan, highlighting that modernizing bank capital standards — including lowering the capital treatment for mortgage warehouse credit facilities — is essential to help sustain consumer access to credit.

“Capital rules are notoriously complex, but based on our initial review, the re-proposal incorporates several priorities long advocated by MBA, including more risk-sensitive capital requirements using loan-to-value ratios and the opportunity to consider the recognition of credit enhancements such as private mortgage insurance,” MBA President and CEO Bob Broeksmit stated. “It also takes important steps to reduce the punitive treatment of mortgage servicing rights and commercial real estate loans.”

Kenneth Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association, echoed the need for appropriate scaling.

“We appreciate policymakers’ efforts to revisit the earlier Basel III proposals and to take a more data-driven approach to recalibrating the U.S. bank capital framework,” he said in a statement Thursday, adding that strong capital standards are essential for a resilient system.

Basel III refers to a global banking framework developed after the 2008 financial crisis that established revised standards for bank capital requirements and other liquidity considerations.

Advocates for smaller firms also celebrated the relief from the proposed rule changes. Karen Kerrigan, president of the Small Business & Entrepreneurship Council, noted in a statement that tighter capital rules limit bank lending capacity, which inevitably affects small businesses first.

Praising the revised proposal, Kerrigan stated that it signals “effective financial safeguards and economic growth can coexist,” and that “a properly designed regulatory framework supports stability while enabling banks to finance business growth.”

The latest proposal represents a reversal from previous regulatory trajectories. It scraps the Biden administration’s push for substantially higher capital requirements that emerged following the 2023 regional banking crisis, when Silicon Valley Bank and other institutions experienced runs on bank deposits, prompting government intervention.

Under the newly introduced framework, the implementation of the international Basel Accords would be paired with simultaneous simplifications to other rules, ultimately resulting in a net reduction in capital requirements.

Federal Reserve Governor Michael Barr, who served as the Fed’s vice chair for supervision during the Biden administration, stood as the lone dissenting voice on the central bank’s governing body advocating against the newly proposed measure, highlighting the lingering debate over systemic risk among regulators.

However, trade groups and business advocates have persistently lobbied for this exact regulatory reversal, warning that the original Basel III “endgame” framework would have severely punished mortgage lending and tightened credit conditions across the economy.

The public comment period on the proposals closes on June 18.