Sheila Bair, former FDIC chair, warns that the Trump administration is weakening post-2008 banking reforms at exactly the wrong moment. US regulators have systematically reduced equity capital cushions and curtailed examiner powers under the guise of expanding credit availability. These changes come as the credit cycle turns and asset valuations reach concerning levels.

Banks have already received relief through eased stress tests, reduced bail-in debt requirements, and higher leverage caps. The administration proposes further changes to risk-based capital rules and G-SIB surcharges. However, Alvarez & Marsal estimates these combined reforms could release 14% capital for banks, while G-SIB leverage ratios have fallen to a 15-year low of just 6.81%. This creates significant vulnerability heading into economic uncertainty.

Big banks argue US capital rules put them at a disadvantage compared to European competitors. Yet US banks have gained market share and commanded higher valuations precisely because of stricter standards. The proposed rules would also reduce capital requirements for private credit exposures and internally-rated investment grade loans, despite banks already providing over half the debt financing for private credit funds.

Lower capital buffers will likely fuel more shareholder distributions rather than new lending. Banks paid $140bn in dividends and buybacks in 2025 alone. Any lending expansion would target riskier borrowers, potentially destabilizing an already stressed financial system. This deregulation threatens the resilience that served US banks well during previous downturns.