Wall Street banks with large trading units may be biggest winners under US capital plan

Core Viewpoint - Wall Street banks with significant trading operations are expected to benefit the most from a U.S. proposal to reduce capital requirements, potentially leading to competition among them as they seek further revisions [1][3]. Group 1: Capital Changes - The proposed plan would reduce the capital that the largest U.S. banks must hold by 4.8%, freeing up billions for lending, dividends, and share buybacks [2][12]. - Capital levels at larger regional banks like PNC and Truist would decrease by 5.2%, while banks with assets below $100 billion would see a 7.8% reduction in capital requirements [12][13]. - Analysts estimate that large U.S. banks currently hold around $175 billion in excess capital, which could be released for lending and buybacks [13]. Group 2: Impact on Trading vs. Lending Institutions - Trading-focused banks such as Goldman Sachs and Morgan Stanley are likely to emerge as the primary beneficiaries of the new capital rules, despite their trading operations being the initial targets of the Basel III draft rule [3][10]. - The changes in the capital requirements may create divisions among banks, as some may feel they received less favorable treatment compared to others [6][11]. Group 3: Regulatory Context - The Federal Reserve's draft rules represent a significant shift from previous proposals that suggested capital hikes of up to 20% for large banks [9]. - The new rules aim to reduce the impact of banks' reliance on short-term wholesale funding in the capital surcharge calculation, which could particularly benefit trading-heavy institutions [10].