Wall Street groups are intensifying pressure on U.S. regulators to ease Basel Endgame capital rules, arguing the proposals risk destabilizing the $29tn Treasury market. The Federal Reserve and other regulators have already softened their plans, but banks seek deeper changes, particularly to market risk calculations. A coalition of trade bodies—a letter seen by the Financial Times warns current proposals could raise banks’ capital requirements by 30-89%, threatening liquidity in Treasury trading. Scott O’Malia, chief of Isda, highlighted concerns about capital charges for liquidity providers as Treasury trades shift to central clearing, urging regulators to align rules with economic risk.

The push reflects banks’ broader lobbying victory since 2008, with the Fed estimating reforms will lower capital requirements by 4.8%. Critics argue the Basel proposals overstate risks, especially for repo-style transactions, and could harm markets critical to U.S. debt issuance. Treasury holdings by banks remain low—just 2% of the total market—but regulators fear liquidity erosion. The Bank of England and EU are delaying their Basel reforms, watching Washington’s moves closely. Skeptics within the Fed question the impact on Treasuries, believing the changes would mainly affect less-liquid assets.

Regulators’ reluctance stems from doubts about the lobbying claims, with officials believing the reforms’ effects on Treasuries are minimal. Wall Street’s push mirrors historical patterns of easing regulations post-crisis, raising questions about systemic risk. The fundamental review of the trading book remains a flashpoint, with demands to adjust default risk calculations and repo transaction treatments. As global regulators await U.S. decisions, the outcome could set precedents for international banking standards, balancing stability with market functionality.

Banks’ lobbying success underscores their enduring influence over financial regulation, even as debates over liquidity and risk persist. The Treasury market’s fragility remains a key concern, with clearing & settlement shifts exacerbating tensions. If regulators reject further tweaks, markets could face heightened volatility, but easing rules risks reigniting post-2008 fragility debates. The Federal Reserve’s final stance will shape global banking norms, testing its authority against Wall Street’s demands.