As Trump's second term deepens, Wall Street is experiencing its most thorough regulatory overhaul since the 2008 financial crisis, with U.S. regulators collaborating to dismantle the complex rules that have long constrained the banking industry, attempting to trade a relaxed regulatory environment for economic growth and market competitiveness.
The core of this "deregulation" storm lies in significantly reducing restrictions on bank capital and daily operations. Federal Reserve Vice Chair for Supervision Michelle Bowman has already cut the size of the Fed's bank supervision division by approximately 30% and instructed staff to focus only on "significant" risks affecting bank solvency, rather than administrative minutiae. Concurrently, the Federal Reserve Board voted to approve a plan to completely overhaul the annual stress tests, allowing banks to learn the testing criteria in advance and provide feedback—a move critics deride as turning the originally rigorous regulatory exam into an "open-book test."
The capital market's reaction was immediate, with deregulation expectations directly translating into investor returns. Following the passage of the 2025 stress tests and rule relaxations, Wall Street lending giants have纷纷 increased dividends; both Goldman Sachs and Morgan Stanley raised their quarterly payouts, while JPMorgan Chase announced its largest-ever stock buyback plan. Regulators also swiftly finalized plans to ease the supplementary leverage ratio, aiming to free up space on bank balance sheets to support their trading activities in the Treasury market.
However, this series of aggressive measures has sparked intense debate in Washington regarding financial stability. White House officials and regulators argue these steps are crucial for fostering innovation and competitiveness, and Treasury Secretary (Note: The original text mentions "贝森特" which appears to be a potential name issue; standard translation for current US Treasury Secretary is Janet Yellen, but the text seems to refer to a future scenario. The translation retains the original name as it's contextually specific) has明确 stated an agenda to continue advancing simplified regulation into 2026. Yet, Democrats and consumer advocates warn that the current changes may not merely "unshackle" banks but effectively restore the lax regulatory mechanisms prevalent before the 2008 crisis, once again embedding risk hazards deep within the financial system.
The relaxation of oversight and the "open-book test" concept became concrete policy shifts shortly after Trump took office. According to Bloomberg reports, as the Fed's top bank supervision official, Michelle Bowman not only significantly reduced supervisory staff but also pushed to streamline the process for banks to obtain a "well-managed" rating—a key passport for banks pursuing mergers and acquisitions and reducing regulatory scrutiny.
The most significant change is evident in the stress testing mechanism. This mechanism, designed to ensure banks can still lend to households and businesses during a severe recession, is undergoing fundamental adjustments. Under the proposal, banks would be able to provide feedback on the hypothetical recession scenarios the Fed intends to use.
Although the Fed argues this is for transparency, critics point out that it means banks will participate in setting the exam questions, thereby undermining the test's seriousness and effectiveness. The public comment period for this proposal will last until February 21st.
Beyond the relaxation of daily supervision, the capital rules crucial for banks' risk resilience are also being rewritten. Regulators have begun negotiations on a new risk-based capital measure, a rule that would determine required capital based on the riskiness of a bank's assets. Compared to the proposal during the Biden administration that was not finalized due to strong industry opposition, the new rule will substantially reduce capital requirements for large U.S. banks.
Furthermore, regulators swiftly finalized plans in November to ease the supplementary leverage ratio. This ratio requires banks to hold capital maintaining a certain proportion against their assets. The financial industry had long complained that this rule discouraged banks from purchasing U.S. Treasuries and acting as market intermediaries. Fed Chair Powell stated during a hearing that when the leverage ratio is binding, it hinders banks from engaging in low-margin but relatively safe activities, such as intermediation in the Treasury market.
Beyond traditional capital and regulatory rules, regulators are also actively integrating crypto assets into the formal banking system, introducing competition in the process. FDIC Chairman Travis Hill stated that regulators are drafting guidance on how federal deposit insurance applies to blockchain-based digital deposits. Simultaneously, the OCC, despite opposition from industry groups, approved requests from five cryptocurrency companies to obtain U.S. bank charters, marking a complete reversal from previous regulatory stances that viewed the industry as rife with "frauds and scams."
On another front, regarding banks denying services based on ideology, regulators have taken a firm stance. Under the leadership of OCC head Jonathan Gould, the agency found that nine large U.S. lenders had engaged in "improper discrimination" against customers between 2020 and 2023, restricting some customers' access to banking services.
Despite the banking industry's welcome for these measures—with the Bank Policy Institute calling the leverage ratio adjustment a "long-overdue reform"—academia and some former officials express deep concern about potential systemic risks.
Jeremy Kress, a University of Michigan business law professor and former Fed banking policy attorney, pointed out that downplaying supervision beyond major capital and liquidity risks could lead regulators to overlook low-probability but catastrophic risks if they materialize. He warned that deregulation essentially allows banks to transfer risk to the public: in the absence of strict oversight, banks have incentives to take on more risk to boost returns, profiting shareholders when successful, while the government is often forced to provide a backstop when they fail.
Arthur Wilmarth, Professor Emeritus at George Washington University Law School, issued a more severe warning. He believes the current policy is a reckless combination of "de-capitalizing, de-regulating, and de-supervising." Wilmarth stated that the Trump administration's policies are almost certain to lead to a disastrous financial crisis, specifically pointing to the bubbles forming in the cryptocurrency and artificial intelligence sectors as potential triggers.
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