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US banks are on the brink of experiencing significant relaxation in capital regulations, which recent studies indicate could release $2.6 trillion for new lending opportunities and urge regulators in other regions to do the same.

This upcoming easing of banking regulations in the US, much of which has already been announced by Washington, is expected to free nearly $140 billion in capital for Wall Street banks, as projected by consultancy firm Alvarez & Marsal.

Since Donald Trump’s return to the presidency, US authorities have adopted a more lenient stance towards banks, pledging to relax numerous rules that previously required banks to increase their capital buffers to withstand losses following the 2008 financial crisis.

The decrease in capital requirements is anticipated to solidify the leading position of major Wall Street firms, enhance their ability to finance substantial investments in technologies like AI and data centers, and enable them to return more capital to their shareholders.

“We believe the Trump administration is initiating a significant wave of deregulation, unlocking substantial capacity that will provide a large economic stimulus and boost earnings,” stated Fernando de la Mora, co-head of financial services at Alvarez & Marsal.

The New York consultancy forecasts that US banks will experience a 14 percent reduction in their common equity tier one requirements, a capital reserve that equips them to manage potential losses.

It forecast this would result in a 35 per cent boost to their earnings per share and a 6 per cent increase in their return on average tangible common equity — a benchmark used by investors.

The report, due to be published on Monday, provides detailed estimates of the impact of changes to banking regulation across the world. It forecast UK regulators would follow the lead of the US and reduce British banks’ capital requirements by about 8 per cent. 

However, it expects EU bank capital requirements to keep rising, predicting a 1 per cent increase, while capital levels for Swiss banks are forecast to rise by up to 33 per cent. The Swiss government has proposed higher capital levels that could require UBS to raise up to $26bn, as authorities seek to strengthen financial stability following the bank’s rescue of crisis-hit rival Credit Suisse.

“This is going to drive a further market share gain by US banks and the UK will just about hold its market share, while the Swiss and the EU banks will lose more ground,” said de la Mora.

JPMorgan Chase, the largest US bank, is set to be one of the main beneficiaries. The easing of restrictions is forecast to release $39bn of its capital, lifting its earnings per share by 31 per cent and its return on equity by 7 per cent.

Michelle Bowman, a longtime critic of stricter bank capital rules, was appointed this year as vice-chair of supervision at the US Federal Reserve and has since committed to ease restrictions that she has blamed for pushing lending into private credit markets.

US regulators have already presented proposals to water down requirements for banks to maintain a preset amount of high-quality capital in proportion to their overall assets. 

They have also announced plans to reform the extra capital buffers required of the biggest US banks and to rework the annual stress tests that impose more restrictions on them.

“There is a capital investment boom in the US to be financed — for AI, data centres, energy infrastructure and some reshoring,” said Huw van Steenis, vice-chair of consultancy Oliver Wyman. “This recalibration of regulation will help banks lean into this financing wave.”

However, European regulators worry about the risks of looser bank capital requirements. Christine Lagarde, the European Central Bank president, this month cautioned against “regulatory rollback”, while Bank of England governor Andrew Bailey warned about “the baby being thrown out with the bathwater” when reforming financial regulation.