US watchdogs are considering reducing capital rules for banks to prevent another financial crisis, in response to lobbying from the banking industry. The proposed changes aim to cut the supplementary leverage ratio that mandates big banks to hold high-quality capital against risky assets. These rules were implemented after the 2008 crisis to safeguard the banking system and prevent economic meltdowns. President Trump’s deregulation agenda, promising to cut regulations, has set the stage for this rollback.

Critics caution against relaxing protections amidst policy uncertainties and market volatility, but banks argue that current rules constrain their ability to lend and compete. The UK is also grappling with the impact of deregulation in the US, with concerns that stricter regulations could hinder competitiveness. UK officials have expressed a desire to encourage more risk-taking and growth in the financial sector.

The Bank of England has delayed implementing new capital rules, Basel 3.1, as it assesses the implications of US deregulation. The Financial Conduct Authority is exploring ways to ease mortgage rules tightened post-crisis to promote home ownership. The move to relax banking regulations reflects a broader trend towards deregulation in the financial sector, driven by economic and political considerations.