Banking Lobbyists Push for Further Deregulation Following Basel III Endgame Adjustments
U.S. banking industry groups are intensifying their push for additional regulatory relief following the Federal Reserve’s recent decision to significantly scale back proposed capital requirements under the “Basel III Endgame” framework. While the banking sector secured a major victory in September 2024 when regulators slashed the original capital increase proposal by half, industry trade groups, including the Bank Policy Institute (BPI), continue to advocate for further concessions regarding market risk and operational risk rules.
Why Banks Are Seeking Further Concessions
Despite the Federal Reserve’s announcement that it would reduce the proposed capital hike for the nation’s largest banks from 19% to 9%, industry leaders argue that the remaining requirements still threaten to constrain lending capacity. According to a statement from the Bank Policy Institute, the revised proposal—while an improvement—still imposes “unnecessary costs” that could stifle economic growth.
The banking lobby’s primary objective now focuses on the technical calibration of the rules. Specifically, firms are pressuring regulators to refine how “operational risk” is calculated. Banks contend that the current metrics do not adequately account for internal risk-management improvements, which they argue should lead to lower capital charges. By pushing for these adjustments, the industry aims to maximize its return on equity by reducing the amount of “idle” capital held in reserve.
The Shift in Regulatory Sentiment
The current regulatory environment marks a notable departure from the post-2008 era, where the trend leaned heavily toward increasing capital buffers to ensure systemic stability. The shift follows intense pressure from both the banking sector and some members of Congress who expressed concern that overly stringent capital rules would push lending activity into the “shadow banking” sector—non-bank financial institutions that are less regulated than traditional commercial lenders.
According to a report from the Financial Stability Board, the rise of private credit and non-bank financial intermediation has become a focal point for global regulators. Banking lobbyists are utilizing this data to argue that forcing traditional banks to hold more capital simply shifts systemic risk to less transparent corners of the market, rather than eliminating it.
Comparison: Original vs. Revised Capital Proposals
The following table summarizes the evolution of the Basel III Endgame proposals based on official disclosures from the Federal Reserve.
| Metric | Initial Proposal (July 2023) | Revised Proposal (Sept 2024) |
| :— | :— | :— |
| Aggregate Capital Increase | ~19% | ~9% |
| Focus Areas | Market, Operational, Credit Risk | Simplified Market/Operational Risk |
| Industry Stance | Strongly Opposed | Moderately Supportive, Seeking Further Cuts |
What Happens Next for Capital Requirements?
Regulators are currently reviewing industry feedback on the revised framework, with a final rule expected to be adopted in 2025. The Federal Reserve, alongside the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), must balance the industry’s desire for lower capital requirements against the mandate to maintain a resilient financial system.
Analysts at Goldman Sachs noted in a recent market briefing that the reduction in capital requirements will likely boost banks’ capacity for share buybacks and dividend increases in the coming fiscal year. However, the exact impact on lending remains a point of contention between bank executives and consumer advocacy groups, who argue that the original, higher capital levels were necessary to protect taxpayers from future bailouts.
As the comment period concludes, the industry’s focus remains on the “tailoring” of these rules, ensuring that the final implementation minimizes the impact on trading desks and fee-based revenue streams.