Wall Street wants to rewrite the rules set after 2008 crisis

The latest lobbying campaign by Wall Street is aimed at the treatment of Treasury market risk within the Basel system. The Basel proposals will create a lack of liquidity in government debt instruments, the fundamental instruments of international financial markets.

What does Wall Street seek?

According to the report, the reason for this worry is clear. If the Treasury market fails to function properly, all markets face problems. Without the participation of dealers in trading Treasury bonds, borrowing costs skyrocket, collateral becomes hard to use, and volatility moves into other assets such as equities, commodities, and digital assets. The recent crises in Treasury markets in 2020 and regional banks in 2023 proved this point.

This current fight is just another episode in the long history of attempts to undo the regulatory framework developed as a result of the 2008 financial crisis. US regulators, under the guidance of the Federal Reserve Vice Chair for Supervision Michelle Bowman, have already made proposals regarding the enhanced supplementary leverage ratio (eSLR) as well as the Basel III Endgame rules.

Fed Chair Jerome Powell acknowledged in a June 2025 statement that the leverage ratio had become “more binding” as banks accumulated Treasury holdings and reserves, Bowman argued the existing calibration “distorted capital allocation” and that recalibrating would let the largest banks “allocate capital more efficiently within their organizations, including to their affiliated broker-dealers, which play a critical role in US capital markets and in Treasury market intermediation.”

The Federal Reserve, Office of the Comptroller of the Currency, and FDIC issued a joint request for comment on proposals to modernize the capital framework in March 2026.

Morgan Stanley analysts have estimated that the combined changes could hand US banks roughly $1 trillion in additional lending capacity. That capital won’t necessarily flow into loans. Some banks may choose buybacks, dividends, or acquisitions instead.

Spillover effects around the world: Europe and Asia watching

The US is certainly not alone in this fight. The European Commission and the Bank of England have postponed their own implementation of Basel III in light of developments in Washington. The European Central Bank (ECB) also came out with its plans toward the end of 2025 to streamline its regulatory requirements without reducing capital requirements. Japan, too, appears cautious.

According to International Banker, regulators from several markets seem to agree that the cycle of post-crisis tightening is coming to an end. As the publication put it, regulators in the US, Europe, and even some Asian countries are “either easing or readjusting their capital rules.”

What may result in this case is a race to the bottom in deregulation. If US banks operate with meaningfully lower capital buffers, then regulators elsewhere will be forced to act or face their financial institutions becoming uncompetitive.

Can it impact crypto?

Relaxed bank capital requirements create indirect consequences for crypto markets. An increased capability to lend and reduced friction in Treasury markets lead to improved financial conditions, which may be conducive to investments in risky assets. This relationship is especially apparent in Bitcoin.

A paper published by the Federal Reserve Bank of Chicago showed that a shock to the expansionary monetary policy increases Bitcoin prices and trades, implying that crypto responds as any other risky asset to changes in liquidity conditions. Furthermore, according to a 2024 paper published by the Bank for International Settlements, global liquidity shocks have been identified as a major determinant of crypto returns and fund flows, particularly in times of abundant dollar liquidity.

The post-pandemic period offers a concrete example. Between March 2020 and November 2021, the Federal Reserve’s balance sheet expanded from roughly $4.2 trillion to nearly $8.7 trillion, while Bitcoin price rose from below $5,000 during the pandemic market crash to an all-time high of around $69,000 in November 2021. While correlation does not prove causation, economists and market analysts widely cite the surge in global dollar liquidity and fiscal stimulus as major factors behind the crypto bull market.

A more liquid Treasury market also matters for stablecoin issuers like Tether and Circle, whose reserves sit heavily in short-term government debt. Anything that smooths Treasury market functioning reduces the tail risk that stablecoin collateral pools face during periods of market stress.

Whether the final US rules deliver meaningful deregulation or just marginal tweaks remains open. The comment period on the Fed’s March 2026 proposals is still underway, and Wall Street’s latest letter signals the industry wants more concessions than regulators have offered so far.