US Bank Capital Rules Overhauled: A Shift Away from Stringency
US banking regulators have proposed significant reforms to bank capital requirements, marking a notable shift from the more stringent framework outlined in the 2023 Basel III Endgame proposal. The new proposals, announced on March 19, 2026, aim to provide an estimated $87.7 billion in system-wide Common Equity Tier 1 (CET1) relief to banks, easing the regulatory burden and fostering a more stable financial environment.
Background: The Basel III Endgame and Initial Opposition
The Basel III Proposal (B3P) represents the US attempt to adopt aspects of the global Basel III Framework established by the Basel Committee on Banking Supervision. EY highlights that the B3P is designed to strengthen bank resilience and align with international regulatory expectations. Though, the initial 2023 proposal faced widespread opposition from the US Congress, the banking industry, and even within the Federal Reserve itself, due to its potentially restrictive capital requirements.
Key Changes and Capital Relief
The revised proposals seek to finalize the Basel Committee’s reforms while also incorporating modifications to the post-Global Financial Crisis prudential regulatory framework. The estimated CET1 reductions vary by bank category:
- Globally Systemically Critical Banks (GSIBs) – Category I & II: Approximately 4.8% reduction
- Large Regional Banks – Category III & IV: Approximately 5.2% reduction
- Smaller Banking Organizations: Approximately 7.8% reduction
Notably, the changes will impact banks with assets between $100 billion and $700 billion, categorized as Category III and IV. Risk Quantum previously reported that the initial Basel III endgame proposals would reintegrate accumulated other comprehensive income (AOCI) into regulatory capital for these regional banks, potentially reducing aggregate capital by $49.5 billion across 21 firms.
The AOCI Reconsideration
Interestingly, the latest proposals appear to move away from implementing the AOCI reintegration. Analysis suggests that US banks’ gains from internal model usage in calculating risk-weighted assets (RWAs) are already limited. This indicates that the Basel III output floor, even if implemented, would have minimal practical impact, supporting the regulators’ decision to drop it from the latest proposal.
Impact on Risk Weights
According to Mayer Brown, the risk weights for residential real estate under the new proposals will be slightly lower than those initially proposed under the Standardized Approach, reflecting the additional capital charge for operational risk already calculated by banks subject to the Basel III Proposal.
Looking Ahead
With only one Federal Reserve Governor dissenting, the proposals have a strong likelihood of being finalized later in 2026. Comments on the proposals are currently being accepted until June 18, 2026. This revised approach signals a more pragmatic path forward for US banking regulation, balancing international standards with the specific needs and conditions of the domestic financial system.