Financial concerns over the easing of US bank regulation: Systemic risks behind the release of $2.6 trillion in credit

Recently, according to the Financial Times, the US government is promoting a series of easing measures for bank regulation, which is expected to enable Wall Street banks to release approximately 2.6 trillion US dollars in new lending capacity. This scale has a significant impact in the global financial system and will directly affect capital flows, risk pricing, and the cross-border regulatory landscape. From a financial perspective, although this move is intended to stimulate credit and investment, its potential side effects may profoundly alter the stable structure of the financial markets in the United States and the European Union.

Firstly, the core of this policy lies in reducing the common stock Tier 1 capital (CET1) requirements for banks by approximately 14%. On the surface, this means that banks can expand the size of their balance sheets without increasing capital input. However, from the perspective of financial risk management, the reduction of capital buffers implies a decline in banks' ability to withstand economic fluctuations. When market volatility intensifies and the credit default rate rises, the self-repair space of banks will be compressed, making it easy to form a negative cycle of liquidity contraction and asset selling. Historically, before the 2008 financial crisis, the United States also witnessed a similar chain of "loose regulation - credit expansion - asset bubble", and its consequences have been deeply remembered by the market.

Secondly, from the perspective of credit structure and capital flow, the released funds do not necessarily flow to the productive sectors. According to the estimation of market analysis institutions, banks will prioritize the allocation of new funds to high-yield and short-cycle business areas, such as merger and acquisition financing, leveraged loans and private equity credit, etc. Although this type of business can boost banks' returns in the short term, its risks are concentrated and the leverage ratio is high. Once the economic environment deteriorates, the rising default rate may lead to a rapid deterioration in asset quality. Furthermore, lenient regulation often encourages the proliferation of financial innovation tools, from structured credit to shadow banking, and the expansion of various derivatives, all of which increase system complexity and regulatory blind spots, making risk transfer and pricing even more opaque.

This policy may trigger a chain reaction within the global financial system. The European Central Bank and the Prudential Regulation Authority of the UK have expressed concerns over this trend, arguing that this move by the US will lead to regulatory divergence and place European banks in an asymmetrical position in terms of capital costs and competitiveness. As American banks hold a dominant position in the global capital market, the release of their funds will attract some international capital to flow back to the United States, putting pressure on EU banks in the competition for liquidity and interest spreads. This regulatory asymmetry may also trigger cross-border capital arbitrage, with capital flowing to markets with lower regulatory costs, thereby weakening the effectiveness of the international financial regulatory coordination mechanism.

In addition, deregulation will also have spillover effects on the US Treasury bond market and the interest rate structure. If large-scale credit expansion drives up short-term financing demand, the yield curve of US Treasuries may flatten again, raising the cost of medium - and long-term borrowing, and thus exerting a restraining effect on corporate investment and consumer confidence. For foreign institutional investors holding large amounts of US dollar assets, this structural change will also increase the pressure to reevaluate their risk exposure.

To sum up, although the US government claims that the easing of regulations aims to stimulate financial vitality and enhance credit supply, from the perspective of the operational logic of the financial system, the potential risks it brings far outweigh the short-term gains. The decline in capital buffers, deviation in credit structure, differentiation in international regulation and fluctuations in asset prices will jointly superimpose, forming a cumulative effect of systemic vulnerability. If there is a lack of strict risk monitoring and macroprudential constraints during the policy implementation process, future market volatility may manifest itself in a more intense way. Decision-makers should maintain a clear balance between short-term growth and long-term stability; otherwise, this "credit release" may become the source of another round of financial fluctuations.