Senator Warren Warns Against Weakening Leverage Ratios

Senator Elizabeth Warren opposed a reported plan to weaken the Enhanced Supplementary Leverage Ratio ("eSLR"), a capital rule that requires the largest Wall Street banks to maintain financial buffers to guard against collapse.

In a letter to Michelle Bowman, Vice Chair for Supervision at the Federal Reserve; Rodney Hood, Acting Comptroller of the Currency; and Travis Hill, Acting Chairman of the FDIC, Senator Warren, ranking member of the Senate Banking Committee, warned that any move to reduce the eSLR would increase financial risk and could set the stage for another banking crisis. She pointed to reports that the three agencies planned to vote on changes to the rule at open meetings scheduled for June 25 and 26.

The eSLR requires the largest Wall Street banks to fund at least 5 percent of their assets at the holding company level, and 6 percent at the insured depository level, with equity capital, not borrowed money. Senator Warren argued that this safeguard, established in 2014, helps ensure banks can absorb losses during times of financial stress without collapsing or needing government bailouts.

In her letter, Senator Warren criticized the banking industry for lobbying to ease the eSLR in order to free up more capital for shareholder payouts like dividends and buybacks. She dismissed claims that the rule restricted lending or Treasury market activity, calling them misleading and unsupported by evidence.

Senator Warren also rejected industry suggestions to exclude Treasury securities from the eSLR calculation. She argued that doing so would ignore the risks posed by interest rate changes, citing the failure of Silicon Valley Bank in 2023.

She reminded regulators that weakening the eSLR without strong data and analysis would be both hypocritical and dangerous. Senator Warren noted that in 2018, the agencies proposed a similar change, but failed to provide adequate justification, and the rule was never finalized. (See related coverage.)

The Senator urged regulators to prioritize reforms that strengthen financial markets—such as increased transparency and oversight of hedge funds—before considering changes to core bank capital rules. She concluded by stating that slashing the eSLR would benefit big banks at the expense of taxpayers and financial stability.