In addition to paying attention to the pace of interest rate cuts and balance sheet expansion by the Federal Reserve in the past 26 years, it is actually more important to focus on the relaxation of the US banking industry by the regulatory authorities. The speech by Federal Reserve Vice Chairman for Regulation Bauman at a congressional hearing in early December actually represents the direction of future US banking regulation: 1) there is room for downward adjustment of capital requirements implied in the Federal Reserve's stress tests; 2) The capital surcharge requirements for Global Systemically Important Banks (GSIBs) are expected to be eased; 3) The so-called Basel III "final" rules will no longer be implemented in the strictest way possible, but will enter a state of "redefinition and reinterpretation" There are several specific policy directions: 1. Modernization of supervision procedures and focus on risk orientation 1) Regulatory agencies (such as the Federal Reserve, OCC, FDIC) emphasize that supervision only targets material financial risks, reducing excessive focus on procedural, governance, or document deficiencies. 2) Bauman is pushing for a reduction of approximately 30% in personnel in the supervisory department (to be completed by the end of 2026), and has released new principles for supervisory operations, simplifying problem rectification and relying on internal audit verification by institutions. 3) OCC will cancel the mandatory policy review requirements for community banks from January 2026; The OCC and FDIC jointly propose restrictions on the issuance standards of MRAs and raise the threshold. 2. Capital requirement adjustment and recalibration of Basel III final rules 1) The original 2023 Basel III "final" proposal (significantly increasing capital requirements) has been significantly revised, and a capital neutral version is expected to be launched in 2026, limiting the magnitude of capital increases and only making minor adjustments for a few large banks. 2) The Community Banking Leverage Ratio (CBLR) is proposed to be reduced from 9% to 8%, with an extended grace period; Starting from January 2026, some regulatory capital standards can be modified to provide greater flexibility. 3) G-SIB (Global Systemically Important Bank) surcharge and supplementary leverage ratio adjustment to avoid excessive burden on low-risk activities (such as holding treasury bond). 3. Bank mergers and acquisitions (M&A) and more relaxed establishment of new banks 1) Revoke the strict merger and acquisition guidelines during the Biden era and restore a more predictable approval process; Multiple large-scale mergers and acquisitions have been approved in 2025, and it is expected to continue to encourage consolidation and enhance the competitiveness of banks in 2026. 2) Simplify the application for mergers and acquisitions of community banks and the establishment of new banks (de novo); FDIC explores allowing non bank bidders to participate in failed bank disposals. If strictly implemented according to the previous Basel III final plan, the banking system would instead be forced to increase regulatory capital by 15% -20%. Now, capital requirements have been lowered to limit the extent of capital increase; Reduce the leverage ratio of community banks; Adjusting the surcharges and supplementary leverage ratios of globally systemically important banks is what was previously referred to as SLR unbinding. These actions mean that the banking system, especially important banks in the global system, can overflow billions of dollars in excess regulatory capital, providing space for the expansion of banks' balance sheets. The overall background here is that after the 2008 financial crisis, the regulation of the banking industry in the United States has become increasingly tight, especially with regulatory frameworks such as the Dodd Frank Act and Basel III significantly increasing bank capital requirements, leverage restrictions, and stress testing standards. The strict regulatory requirements have increased the compliance costs of financial institutions, restricted banks' credit lending and business innovation, especially affecting the profitability and development speed of large banks, and making it more difficult for some small and medium-sized enterprises to obtain financing. The share of banks in the leveraged loan market has decreased from 30% in 2009 to 10% now. This creates a huge financing vacuum: small and medium-sized enterprises and private equity backed companies find it difficult to obtain funding from banks or the public market. Private credit funds (such as direct loan funds) quickly fill the gap and provide customized and fast executing financing solutions. Both the Federal Reserve and FSB reports point out that this is one of the "twin tails" of private credit growth. So for 26 years, the policy orientation of the United States in the banking industry was to allow the banking system to expand again - by relaxing regulation, allowing banking giants to become bigger, stronger, and lend again. Let the US banking industry directly intervene in economic development again. This has two purposes: One is to address the current strategic goals of the United States, which include re industrialization, localized production, infrastructure construction (including data centers and power networks urgently needed for AI), and defense investment. Provide a large and continuous supply of capital The second is to gradually reduce the size of the Federal Reserve's balance sheet, promote the transfer of credit allocation to the private sector, and trigger the expansion effect of broad money supply. This is also the direction of Federal Reserve reform recently mentioned by Besent, Hassett, and even Walsh Of course, there is also a potential impact that will squeeze the scale of private credit and shadow banking. In the past decade, the theme of credit expansion in the United States has been that private credit has filled the space for bank contraction. Now, regulatory agencies such as the Federal Reserve, the Office of the Superintendent of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) continue to push for a deregulation agenda, reducing the burden on banks and promoting the banking industry to restart the expansion of their balance sheets, allowing them to increase the frequency and magnitude of credit activities.