Bloomberg) -- US Senator Elizabeth Warren criticized potential reforms to a key bank capital buffer ahead of regulators' meetings this week, saying the rule is a "critical safeguard" that promotes financial stability.
Officials are set to propose changes to what's known as the enhanced supplementary leverage ratio, Bloomberg News reported earlier this month, after concerns that the bank capital rule constrained trading in the $29 trillion Treasuries market.
"It would be irresponsible to slash the eSLR in any economic environment. It is especially reckless to do so given the numerous threats to the economy and the nation's financial system," Warren wrote in a letter to Federal Reserve Vice Chair for Supervision Michelle Bowman, as well as acting chair of the Federal Deposit Insurance Corp. Travis Hill and Rodney Hood, the acting head of the Office of the Comptroller of the Currency.
Warren said the economy already faces risks from President Donald Trump's "chaotic tariff policies." In April, Trump's tariffs rattled the markets, sharpening investors' focus on the standards.
The Fed received the letter and plans to respond, according to a spokesperson. Representatives for the OCC and FDIC declined to comment.
The plan is expected to lower a bank holding company's capital requirement under the eSLR to a range of 3.5% to 4.5%, down from the current 5%. The firms' banking subsidiaries would also likely see their requirement reduced to the same range, down from the current 6%.
The Fed's plan would ask for comments on whether the agencies should carve out Treasuries and other assets from the leverage ratio calculation.
Bowman said earlier this month that leverage ratios are intended to act as a "backstop" to risk-based capital requirements and when it becomes the binding constraint at an excessive level it can lead to market distortions.
Fed Chair Jerome Powell has supported possible revisions to the supplementary leverage ratio standards and in February told lawmakers that he had been "somewhat concerned about the levels of liquidity in the Treasury market" for a long time.
Warren said Treasuries are not completely free of risk and banks should not be permitted to finance those investments with unlimited leverage.
"Banks' own actions, and a clear record of evidence, demonstrate that concerns over a strong eSLR are more related to big banks' ability to make payouts to shareholders and executives than their ability to act as a source of strength to the economy during periods of stress," the Massachusetts Democrat said.
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