Our Take: financial services regulatory update – May 30, 2025

• What happened? On May 23^rd, Treasury Secretary Scott Bessent said the Fed, OCC and FDIC would propose changes to the supplementary leverage ratio (SLR)¹ this summer. Also on May 23^rd, the Fed joined bank and business groups that had sued the agency over its stress testing framework in filing a motion to stay the litigation until at least August 1^st.
• What did Bessent say about the SLR? Bessent referenced relief measures implemented during the pandemic to temporarily exclude U.S. Treasury securities and central bank reserves from the calculation of the SLR. He said that estimates indicate that the proposal could allow banks to hold more Treasuries and reduce yields by tens of basis points.
• Why did the Fed join a request to pause stress testing litigation? The motion cites the Fed’s ongoing actions to modify its stress testing framework to address the issues raised in the lawsuit. It notes that the Fed already issued a proposal to reduce the volatility of changes to capital requirements resulting from stress test results on April 17^th. The motion also states that the Fed will fully disclose its stress test models and issue further proposals to seek comment on models and scenarios starting with the 2026 stress tests as well as a revised scenario design framework.
• What’s next? The banking agencies will issue a proposal on the SLR in the coming months and the Fed will issue further stress testing-related proposals by September 30^th.

Our Take

Long-awaited leverage ratio relief. The forthcoming SLR proposal reflects growing policy consensus that the current formulation may be overly constraining – particularly in periods of elevated central bank reserves and heightened Treasury market activity. The proposal could formalize some version of the pandemic-era relief referenced by Bessent, but regulators may also consider modifications that address concerns raised during that period — including the accuracy of treating Treasuries as entirely risk-free and reducing capital requirements too broadly. For example, they could limit exclusions from the SLR calculation, reduce the minimum ratio itself, or recalibrate the enhanced SLR applied to the largest institutions. In any case, banks should be prepared to evaluate capital allocation strategies, optimize for multiple constraints, and reassess business line profitability under different leverage ratio definitions.

A peek behind the stress testing curtain. The Fed’s decision to publish supervisory models and invite comment on scenarios will be a landmark change after nearly 15 years of declining to do so. It will provide banks earlier visibility into supervisory expectations, reduce volatility in capital planning, and allow institutions to align internal models more closely with regulatory frameworks. While some observers have raised concerns that public models could lead to “gaming the test,” the Fed will likely seek to preserve the value of stress testing by varying scenario design and maintaining sufficient challenge to assess resilience. For banks, the shift presents an opportunity to deepen internal scenario capabilities, increase transparency around capital drivers, and engage with the Fed to influence future framework development.

What’s the bottom line? Upcoming proposals offer banks a clearer, more flexible foundation for capital planning – with new opportunities to optimize balance sheets and align internal and supervisory views.

_{¹ The SLR is a non-risk-based capital measure defined as the ratio of a banking organization’s Tier 1 capital to its total leverage exposure.}

These notable developments hit our radar recently:

Trump comments on GSEs. On May 27^th, President Trump posted that he is working on taking the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac public, but that the U.S. government will “keep its implicit guarantees” and that he would maintain oversight as President.

CFPB will request court to vacate open banking rule. On May 27^th, the CFPB filed a status update with the federal district court in Kentucky stating that it has determined that its open banking rule, developed to implement Dodd-Frank Act Section 1033, is “unlawful and should be set aside.” The CFPB further said it intends to file a motion for summary judgment by May 30^th.

FDIC board meeting. On May 20^th, the FDIC Board of Directors met in an open session to discuss a semi-annual update on the deposit insurance fund restoration plan and voted to rescind the 2024 FDIC Statement of policy on bank merger transactions and reinstated the prior FDIC bank merger policy. The Board noted that a broader re-evaluation of the FDIC's bank merger review process is ongoing.

CFTC departures continue. On May 21^st, CFTC Commissioner Kristin Johnson announced that she would step down later this year as her term has expired. With her announcement, every current Commissioner is planning to step down, with only Chair-nominee Brian Quintenz on track to join the CFTC, although he has not yet had a confirmation hearing scheduled.

FSOC to meet. On June 4^th, the Financial Stability Oversight Council (FSOC) will meet in an executive session to discuss updates on supervisory and regulatory frameworks for the banking sector; digital assets; commercial real estate developments; and an update on corporate credit.

Upcoming SEC public meetings. The SEC recently announced multiple public events it will be hosting in June. First, on June 5^th, the SEC’s Investor Advisory Committee will hold a public meeting to discuss exploring pass-through voting and other means of reaching the ultimate beneficial owner and hear market perspectives on non-GAAP financial disclosures. The committee will also discuss a potential recommendation regarding the use of mandatory arbitration clauses by SEC registered advisers. Second, the SEC will hold a roundtable discussion on June 26^th to examine executive compensation disclosure requirements. Ahead of this roundtable, Chairman Atkins issued questions and encouraged the public to provide their views to SEC staff ahead of the discussion.