Fed’s Basel III Proposal to Reduce Capital Requirements for US G-SIBs by $45.2 Billion

The Federal Reserve’s recently published Basel III endgame proposal, released on March 19, is projected to reduce prospective capital requirements for US global systemically important banks (G-SIBs) by $45.2 billion. This reduction stems from adjustments to the G-SIB surcharge, according to an analysis by Risk Quantum. Risk.net reported on this development.

Key Changes and Beneficiaries

A core element of the reform involves updating the coefficients used to calculate G-SIB scores under Method 2, the US-specific framework. The changes are expected to particularly benefit Morgan Stanley, Goldman Sachs, and BNY Mellon. Risk Quantum details this impact.

Broader Regulatory Landscape

These adjustments occur alongside other regulatory changes impacting G-SIBs. For instance, a proposed US Treasury clearing mandate is anticipated to free up $207 billion in leverage exposures for six G-SIBs, according to the Office for Financial Research. Risk.net provides further details on this mandate.

Shifts in Systemic Risk Assessments

Recent assessments of systemic risk among G-SIBs have also shown shifts. Morgan Stanley experienced the most significant change in its systemic risk profile at the conclude of 2024, with its substitutability category increasing and its complexity category decreasing. Risk.net covered this assessment by the Financial Stability Board.

Impact and Future Outlook

The Basel III endgame proposal represents a significant adjustment to capital requirements for US G-SIBs. These changes, combined with other regulatory developments, are reshaping the risk landscape for these institutions. The anticipated reduction in capital requirements could influence lending practices and investment strategies in the coming years. Risk.net’s Facebook post highlights the overall impact of the proposal.