Federal banking regulators released a long-awaited proposal on Thursday that would reduce capital requirements on large and regional banks, a move that proponents hope will trim red tape and encourage more lending. Critics fear the changes could increase systemic risk in the banking sector.
The proposed changes would reduce, by billions of dollars, the capital that banks are required to set aside to cover potential losses. The changes cumulatively reduce the largest banks’ core safety cushion requirements by 4.8 percent, on average. Smaller banks would see average decreases of as much as 7.8 percent, according to the regulators’ analysis.
The proposals would alter rules imposed in the aftermath of the financial crisis that sparked the Great Recession in 2007. Since then, large banks more than doubled their capital levels, adding $1 trillion to the buffers intended to help them withstand shocks and downturns.
Banks have for years lobbied to have requirements loosened, and regulators said they agreed that it was now safe to make adjustments.
“It has been almost two decades since the crisis, and over the years we have come to understand that certain elements of the post-crisis regulatory regime may warrant recalibration,” Jerome H. Powell, the chair of the Federal Reserve, said Thursday.
The board voted, 6 to 1, in favor of the proposed overhauls.
The package of suggested rules were foreshadowed last week in speeches by top regulators. They will soon be posted on the Federal Register and will be open for public comment for 90 days before they are officially approved.
The changes come amid a broader push by the Trump administration — led by Michelle W. Bowman, the Fed’s vice chair of supervision — to slash banking regulation and oversight. Last year, the Fed proposed changes to the stress test exams that big banks take annually, making them more bank friendly. The Fed also plans to cut its supervision staff by 30 percent.
In a memo accompanying the proposed capital rules, Fed staff cited the mortgage market, in particular, as one they believed could be boosted by the changes. While home lending was once a core function of banks, the industry is now dominated by non-bank lenders, which originated the majority of mortgages last year.
Ms. Bowman said the proposals would remove unnecessary fetters that had constrained credit to businesses and households.
“The result will be more efficient regulation and banks that are better positioned to support economic growth, while preserving safety and soundness and financial stability,” she said.
On Thursday, the proposed capital requirements drew only one dissent, from the Fed governor Michael Barr. He called the capital requirement reductions “unnecessary and unwise.”
Mr. Barr, who was replaced as vice chair for supervision after President Trump took office, said he supported some of the suggested technical tweaks but had significant concerns about alterations to proposed rules for the adoption of an international regulatory framework known as Basel III.
Allowing a “much weaker” version of those rules in the United States “could trigger a ‘race to the bottom’ on standards, harming the global financial system,” he said.
Regional banks in particular stand to benefit from the revised requirements, which will free up capital for lending, or for share buybacks and dividends. Such banks can play an especially vital role in providing credit for local businesses and commercial development.
But they can also pose outsize risks. Three years ago this month, the collapse of Silicon Valley Bank, a tech industry lender, set off a crisis of confidence that spotlighted solvency issues across the regional banking sector. Within days, two more banks failed.
Most of Thursday’s proposals were jointly issued by the Fed, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.
Colby Smith contributed reporting.
Stacy Cowley is a Times business reporter who writes about a broad array of topics related to consumer finance, including student debt, the banking industry and small business.
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