Leverage Rules in a Post-Crisis World: What the Fed’s Proposal Means for Private Investors

On June 18, 2025, U.S. banking regulators—specifically the Federal Reserve, FDIC, and OCC—announced a plan to ease the enhanced Supplementary Leverage Ratio (eSLR) for the nation’s largest banks. The proposed changes would reduce required capital buffers by as much as 1.5 percentage points, lowering the threshold to approximately 3.5–4.5% of total leverage exposure. Some versions of the proposal also consider exempting U.S. Treasuries from the ratio altogether. This move, long discussed but only now formalized, is aimed at freeing up capital so banks can more actively trade and make markets in Treasuries, which are foundational to global liquidity and pricing across all asset classes.

The rationale is clear: during moments of market stress—like in March 2020—the Treasury market itself has experienced dysfunction as banks hit their leverage limits and withdrew. Regulators believe that by loosening these restrictions, banks will have more capacity to absorb risk and provide liquidity during shocks. Critics argue that unless Treasuries are fully carved out from the ratio, the impact may be muted. Regardless, the direction of travel is significant. It signals a return to greater flexibility for large balance-sheet institutions and a shift in how public market plumbing is regulated.

From a practical standpoint, a reduction in the eSLR unlocks potentially over $100 billion in capital across U.S. global systemically important banks. This creates the conditions for tighter lending spreads, increased repo activity, and marginally lower funding costs in areas like syndicated loans and high-grade credit. The renewed participation of banks in these markets could compress pricing, particularly in low-risk senior lending. For institutional investors, the clear implication is margin compression on commoditized credit. But there’s more to the story.

Private credit has grown to over $1.6 trillion in assets under management largely because banks were constrained. With relief in sight, some of the larger sponsor-backed deals—especially in the upper middle market—may drift back to banks or club-style syndicates, pushing yields tighter by 50–75 basis points. That said, more complex, asset-backed, and esoteric financing—where banks remain hesitant—will likely continue to be led by private lenders. The same is true for distressed and special situations, where creativity and structure determine outcomes, not regulatory capital. The easing of bank leverage may lift prices in liquid distressed credit through greater repo capacity, but proprietary workouts and hybrid capital structures will retain their premium.

At Raven Resources, we see this as a positive development—not a threat.

First, speed still wins. “Raven Speed” remains unmatched by the internal bureaucracy of traditional banks.

Second, we view banks not as competitors, but as downstream syndication partners. With more room on their balance sheets, they become buyers of the senior tranches originated by deals like ours.

Third, if this easing ends up fueling future volatility—as some critics suggest—it only increases the value of optionality and the asymmetric positioning we build into our transactions.

And fourth, our global footprint allows us to arbitrage across jurisdictions. Gulf-based lenders, who’ve never been bound by U.S. leverage rules, have already been active partners. U.S. banks returning to the market simply broadens the pool of capital available for our structured deals.

What happens next depends on several things. Political resistance could dilute or delay the proposal. Stress testing requirements may increase to compensate for the reduced leverage requirement. The market will also watch spreads and swap levels to judge whether the reform delivers meaningful liquidity. For the private markets, the key adjustment is margin: plain-vanilla senior risk will tighten, but complexity and execution speed will remain scarce—and therefore valuable.

This is not a revolution, but it is a recalibration. At Raven Resources, we built our business on identifying dislocation, structuring for value, and executing with certainty. Those strengths don’t go away when the rules shift—they become even more important. In the end, public market function matters to us because it supports liquidity and exit pathways. But the core asset in any regime is still judgment. And that, thankfully, is not something the Fed can regulate.