U.S. Regulators Plan to Ease SLR Rules: What It Means for Banks and Bonds

SLR Rules Eased

Regulators Move to Ease SLR: What It Means for Banks, Bonds, and Your Money

On May 15, 2025, U.S. financial regulators quietly cracked open the door to a potential shift in the post-crisis regulatory framework that has shaped banking behavior for more than a decade. The change? A potential easing of the Supplementary Leverage Ratio better known as the SLR. If you’re not deep in the weeds of financial regulation, don’t worry. This isn’t just banker jargon. It’s a move that could ripple through U.S. Treasury markets, reshape bank balance sheets, and eventually affect everything from mortgage rates to investor sentiment.

Let’s break down what this all means starting with the basics.

The SLR was born out of the 2008 financial crisis. After the collapse of Lehman Brothers and the domino effect that followed, regulators realized that traditional measures of risk-weighted capital weren’t enough. Banks needed a more conservative backstop: a ratio that didn’t care about how “safe” an asset looked on paper, but instead asked a simpler question how much capital do you have, and how does that compare to your total exposures, no matter how “low-risk” they claim to be?

The result was the SLR, which requires large U.S. banks to hold a minimum ratio (currently 3% for most, 5% for GSIBs) of Tier 1 capital against total leverage exposure including off-balance sheet items and supposedly safe assets like Treasuries.

During the COVID-19 pandemic in 2020, the Fed temporarily adjusted the SLR calculation to exclude U.S. Treasuries and central bank deposits. The goal was to ease constraints and allow banks to keep functioning as bond market intermediaries without bumping into capital walls. That exemption expired in 2021. Since then, banks have lobbied for more flexibility arguing that SLR rules, as currently written, disincentivize holding Treasuries and limit market-making capacity at times when the Treasury market needs the most liquidity.

Fast forward to 2025, and those arguments have gained new traction.

According to a Financial Times report confirmed by Reuters on May 15, U.S. regulators are now “poised to ease capital requirements” by potentially modifying how Treasuries and central bank reserves are treated in the SLR formula. This isn’t just theoretical. Sources suggest formal proposals could come as soon as this summer, depending on interagency coordination between the Federal Reserve, OCC, and FDIC.

So, what changed? Several things:

The Treasury market has grown enormous and more volatile. With U.S. debt exceeding $35 trillion, the need for stable Treasury market intermediaries has never been greater. If banks step back due to capital constraints, liquidity gaps can widen quickly.
Money market fund flows are flooding the system with deposits, pushing bank reserves to levels that strain leverage ratios even when banks are behaving conservatively.
The Fed’s tightening cycle is easing, and regulators are shifting from a “containment” mindset to a “stability” one. A softer SLR could signal that the emergency has passed and that it’s time to boost lending, bond demand, and financial flexibility.

Now, let’s talk impact.

If the SLR is revised to exclude some or all Treasury securities, banks will suddenly have more balance sheet breathing room. That means:

Increased demand for Treasuries: Banks will feel freer to act as dealers, stabilizing price action during auctions and volatility spikes. This could lower yields at the long end.
More lending capacity: With capital freed up, large banks may become more aggressive in loan origination supporting credit availability at a time when small business lending is tightening.
Better bank earnings: Higher fee income from bond intermediation, lower capital drag, and improved ROE metrics could follow.
Possible boost to financial stocks: Especially GSIBs like JPMorgan, Citi, and BofA that have long complained about “excessive capital buffers” squeezing profitability.

Of course, there’s the flip side.

Critics argue that softening SLR sends the wrong signal particularly when inflation is still above target and regulators have spent years warning against too-big-to-fail complacency. Some fear that excluding Treasuries could once again incentivize asset bubbles, especially if banks reload on government bonds without matching risk buffers.

Still, the political wind seems to be shifting. With an election year in full swing, there’s growing appetite to be seen as pro-growth, pro-lending, and pro-market-liquidity. Even if the SLR change doesn’t go full repeal, a “targeted tweak” could be enough to send a clear message: the era of hard-edged post-crisis regulation is softening at the edges.

What should investors watch next?

Expect an official notice of proposed rulemaking (NPR) from one or more agencies by summer 2025. The Fed may lead, but coordination with the OCC and FDIC will be key.
Pay attention to bank earnings calls: If CFOs start flagging balance sheet expansion plans or increased Treasury activity, that’s your confirmation.
Watch Treasury yield curves. A flattening move especially long-end buying by dealer banks may reflect anticipation of SLR flexibility.
Look for movements in bank stocks and REITs, which often respond sharply to leverage rule chatter.

Bottom line? This may look like a wonky regulatory shift but in reality, it could mark a quiet but powerful policy pivot that shapes how money flows through the U.S. economy for years to come.