Bank stocks fall after Fed elects to let pandemic-era capital break for banks expire

• JPMorgan and other bank stocks fell Friday after the Federal Reserve said a rule change on capital requirements will expire.
• The change in the Supplementary Leverage Ratio, or SLR, rule is due to expire on March 31.
• The Fed relaxed capital requirements last May to encourage banks to loan money during the pandemic.

Shares of JPMorgan and other banks fell Friday after the Federal Reserve decided to end a rule that relaxed capital requirements to encourage banks to loan money during the COVID-19 crisis.

The central bank said its rule change in the supplementary leverage ratio, or SLR, will expire as scheduled on March 31. Under the SLR, banks with more than $250 billion in assets have to protect against losses by holding capital equal to 3% of their total assets.

But the Fed relaxed the rule in May 2020, allowing banks to reduce the amount of capital they were required to hold in Treasuries and other assets. With the Fed's decision to let the rule change expire, shares of JPMorgan Chase lost 3.3%, Bank of America declined 2.6% as did those of Wells Fargo, and Citigroup gave up 1.7%.

Among exchange-traded funds, the Invesco KBW Bank ETF fell 2.3% and the SPDR S&P Bank ETF pulled back by 1.8%.

The closely watched 10-year Treasury yield rose to 1.733% after the Fed's statement as bonds sold off. The yield had been as low as 1.68% before the statement. A rise in long-dated yields can favor banks as it improves their prospects for growth in interest income, but the yield's rise on Friday didn't stop the drop in bank stocks.

The Fed said Friday the relaxing the SLR rule was enacted "to provide flexibility for depository institutions to provide credit to households and businesses" as the pace of the pandemic accelerated.