EBM Newsdesk Analysis
On 26 May 2026, analysis put a number on Washington and London’s deregulatory drive: easing a single capital rule — the leverage ratio — has handed the largest US and UK banks an estimated $1.3 trillion in fresh lending capacity. The change loosens the supplementary leverage ratio, one of the loss-absorbing buffers erected after the 2008 collapse to stop banks lending themselves into another crisis. Unwinding it frees up capital that was, by design, meant to sit idle as a shock absorber. The buffers built in the wreckage of Lehman are now being quietly dismantled.
This is the central tension of the moment. To regulators in the Trump administration and a competitiveness-focused UK, those buffers are dead weight throttling growth and handing ground to less-regulated non-bank lenders. To their critics, they are the only reason the system survived the last crisis intact. A $1.3 trillion release is either a growth engine or the removal of the airbag — and which it proves to be will not be clear until the next downturn tests it.
What actually changed
The mechanism is technical but the logic is simple. The leverage ratio forces a bank to hold capital against its total assets regardless of how safe those assets are — a blunt backstop sitting behind the risk-weighted rules. US regulators have eased the enhanced version of that ratio, and the UK is moving in step, reducing the capital the biggest banks must park against their balance sheets.
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SubscribeCapital freed from the buffer does not vanish; it becomes lending firepower. The change was explicitly designed to reduce disincentives for low-risk, high-volume activities — above all, intermediating in the US Treasury market, where the old rules made it expensive for banks to hold government bonds. The $1.3 trillion is the estimated scale of new capacity unlocked across the major US and UK lenders.
Part of a much bigger rollback
The leverage-ratio change is one front in a broader campaign. It sits alongside a sweeping March 2026 re-proposal covering four pillars: stress testing, the supplementary leverage ratio, the Basel III risk-based capital framework, and the surcharge on globally systemic banks. Taken together, analysts estimate the full US deregulatory agenda could unlock far more — Jefferies and Alvarez & Marsal have put the figure as high as $2.6 trillion in lending capacity.
The intent is openly strategic. Washington wants its banks to compete more effectively with the non-bank lenders that have eaten into their business, and to channel capital into AI, data centres and energy infrastructure while boosting shareholder payouts. The aggregate effect would cut capital requirements at the largest US banks by roughly 6% — reversing, almost exactly, the increase the final Basel rules were meant to impose.
The pressure now falls on Europe
This is where it becomes a European problem. The transatlantic banking system runs on a rough parity of rules; when one side loosens, the other faces a competitiveness gap. US and UK banks freed of capital constraints can price loans more keenly, return more to shareholders, and pursue deals their European rivals cannot match while holding heavier buffers.
The EU has already hesitated, delaying parts of its own Basel implementation. Now the $1.3 trillion figure sharpens the dilemma facing Frankfurt and Brussels: hold the line on post-crisis safety and watch European banks lose ground, or follow the deregulatory path and erode the very protections the bloc spent a decade building. Either choice carries a cost, and neither is comfortable.
A bet against memory
The deepest question is whether this is reform or amnesia. The buffers being unwound were not arbitrary — they were the direct response to a crisis in which undercapitalised banks required taxpayer bailouts that reshaped a generation of politics. Loosening them in pursuit of growth and competitiveness is a wager that the lessons of 2008 are now over-learned, and that the system can carry more risk safely.
It may be right. Banks are far better capitalised than they were, and over-cautious rules do carry a real economic cost. But $1.3 trillion of released capacity is a large bet to place against institutional memory — and the bill, if it is wrong, has historically been settled by the public, not the banks.
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