Washington readies $175 billion relief for major banks, reducing safeguards against financial turmoil.

Washington is preparing to potentially ease conditions for the largest banks in the United States.

This may seem abstract unless one examines the underlying mechanics. Regulators determine the amount of capital banks must retain to cover losses and the liquidity they require if funding begins to dwindle.

Increased capital and liquidity enhance the stability of banks, but they also restrict the amount of money banks can lend, trade, or distribute to shareholders. Conversely, reduced capital and liquidity provide banks with greater operational flexibility while leaving them with a thinner safety net during adverse conditions.

This tradeoff is currently at the forefront of U.S. banking policy. On March 12, Federal Reserve Vice Chair for Supervision Michelle Bowman indicated that regulators are working on a more lenient revision of the long-debated Basel III endgame rules, the post-2008 capital framework that Wall Street has sought to dilute for years.

The revised version may keep capital requirements for large banks approximately stable or slightly lower than current levels once related adjustments are factored in, potentially releasing over $175 billion in excess capital throughout the sector. Additionally, surcharges for the largest global banks could decrease by around 10%.

This marks a significant shift from the previous stance taken less than three years ago.

The earlier proposal, advocated by Bowman’s predecessor, Michael Barr, in 2023, aimed to increase capital requirements for the largest banks by approximately 19%. Banks contended that this proposal would elevate the cost of credit, diminish market-making capabilities, and drive activity away from the regulated sector.

Critics of the banks argued the contrary: years of easy monetary policy, concentrated asset risks, and repeated stress events necessitated thicker buffers. The new draft aligns much more closely with the banks’ perspective on this issue.

Washington’s proposed banking policy pivot to ease capital and liquidity rules, potentially unlocking $175B in excess bank capital.

The contrast is particularly notable for Bitcoin: while Washington seems poised to grant large banks greater flexibility regarding capital and liquidity, direct exposure to crypto may still face significantly stricter regulations, indicating that regulators are more comfortable supporting traditional balance-sheet risks than integrating Bitcoin into bank portfolios.

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The real policy turn is bigger than capital

On its own, this would already constitute a significant banking narrative. Its broader implications arise from the second component evolving alongside it: liquidity.

Earlier this month, Treasury officials announced they were reassessing liquidity regulations and proposed an idea that would allow banks to receive some regulatory credit for collateral they have already positioned at the Federal Reserve’s discount window.

In simpler terms, regulators may begin to recognize part of a bank’s capacity to borrow emergency funds as usable liquidity. The Treasury referred to this borrowing capability as “real, monetizable liquidity.”

This implies that banks may not need to maintain as much idle capital if they can demonstrate that they have assets prepared at the Fed that can be quickly converted into cash. Essentially, the system is being restructured to incorporate a more direct role for the central bank’s support.

For years, regulators have attempted to establish a framework that would ensure banks could be self-sufficient during a crisis. They were expected to hold sufficient liquid assets to withstand a run and regard the Fed’s discount window as a last-resort emergency tool.

However, in reality, banks have long shunned the window because utilizing it is perceived as a clear indicator of distress. The Treasury is now openly acknowledging that this stigma is problematic and that the regulations should better reflect the reality that the discount window is intended for use.

This perspective is notably different just three years after the regional bank failures of 2023.

Silicon Valley Bank, Signature Bank, and First Republic collapsed as confidence evaporated rapidly, depositors acted even faster, and liquidity that seemed available in theory proved much more challenging to mobilize in practice.

The Fed’s own assessment of SVB indicated that the bank had significant deficiencies in liquidity risk management and that supervisors failed to fully recognize how vulnerable it had become as it expanded. The official response at that time was clear: banks required enhanced oversight, improved preparedness, and greater resilience.

The 2026 revision suggests that the system also requires lighter capital requirements, a less punitive approach to discount-window readiness, and fewer restrictions on the largest institutions.

More room for banks, less friction in the system

If the new framework is implemented, large banks would gain increased capacity to extend credit, enhance trading capabilities, repurchase shares, and facilitate deal activity.

Proponents argue that this is precisely the objective. Bowman contended that excessive capital requirements impose genuine economic costs and can hinder banks’ fundamental role of providing credit to the wider economy. Industry groups echoed this sentiment, asserting that the revised plan would align requirements more closely with actual risk.

The opposing side of this tradeoff is equally evident.

Capital regulations serve as a shock absorber, while liquidity regulations act as a brake. Easing both simultaneously grants banks more freedom while the system experiences less inherent friction. This shifts the official balance away from maximum safety toward efficiency, credit generation, and smoother access to Fed funding.

However, the Fed’s primary challenge now is timing.

Senator Elizabeth Warren cautioned against relaxing capital standards while geopolitical and credit risks are already on the rise. Although her objection is political, it highlights the contradiction at the heart of the discussion.

Following SVB, Washington asserted that bank resilience must be prioritized. Now, with concerns about growth, market volatility, and funding sensitivity resurfacing, Washington is preparing to provide the largest banks with more operational flexibility.

The implications are straightforward.

This is a decision regarding how much leeway to maintain in the financial system before the next stress event occurs. A stricter framework will compel banks to hold more idle protection. A more lenient one will accept a bit more vulnerability in exchange for increased lending, heightened market activity, and reduced pressure on profitability.

Bitcoin’s critique of the banking system has consistently been strongest when policymakers expand the role of emergency support while portraying the overall structure as stable and self-sufficient.

The discount window is not a minor detail in that narrative, but rather a component of the infrastructure that prevents confidence from collapsing entirely.

When the Treasury begins to argue that prepositioned Fed collateral should be more directly factored into bank liquidity regulations, it acknowledges that the system still relies on central-bank rescue mechanisms even during periods marketed as normal.

A crisis is not imminent, but Washington is intent on revising the post-SVB regulatory framework. This time, it aims to base it on a pragmatic assumption: that when the next panic occurs, the largest banks require greater flexibility and the Fed’s support must be more readily accessible without hesitation.

It is undoubtedly a much-needed relief for Wall Street.

For others, however, it serves as a reminder that the banking system continues to be adjusted around the same persistent issue: private risk-taking functions best when public liquidity is always within reach.

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