Essential Responses to the Outlined Capitals Requirements Preview
The Federal Reserve is currently reviewing and updating the capital framework for large U.S. banks, with a focus on proposed changes to increase capital requirements as part of implementing the final Basel III standards. This process, often referred to as "Basel IV," also addresses other risks such as operational risk and exposures from new areas like climate change and cryptocurrency activities.
The latest key development was a Fed-hosted conference on July 22, 2025, to discuss the integrated review of the regulatory capital framework. This conference included expert perspectives on the Basel III Endgame proposal, stress testing, the GSIB surcharge, and leverage requirements.
The Federal Reserve has invited extensive feedback on the enhanced supplementary leverage ratio (eSLR) proposal, with comments due by August 25, 2025. A follow-up proposal on stress testing transparency is also expected by the end of September 2025. The Fed leadership emphasizes a coordinated, cohesive approach across bank capital regulations, ensuring tailoring to bank size and complexity remains a core supervisory principle.
Reception by key stakeholders appears mixed but cautiously engaged. Some academics and market analysts argue that current U.S. capital levels for large banks may be too low, noting decreasing leverage ratios in recent years and the potential risks from banks exploiting risk-weighting schemes. This supports the case for higher capital requirements. On the other hand, industry participants engaged in the Fed’s discussions generally recognize the need for reform but seek a balanced approach that avoids constraining credit availability, economic growth, or essential banking activities such as treasury market intermediation and custody services.
If the revamped plan is released on Sept. 19 and given a 60-day comment period, the earliest a rule could be finalized is Nov. 18. This timeline gives a new Congress about two weeks to launch an effort to invoke the Congressional Review Act (CRA), a nuclear option for the proposal's Republican opponents. However, some, like Ian Katz, managing director of policy research at Capital Alpha Partners, suggest that a Basel endgame proposal might be possible under Republican regulators, but it would look different and be easier on the banks.
Notable figures such as Sen. Elizabeth Warren have criticized the revised bank capital standards as a "Wall Street giveaway" and called Jerome Powell, the Federal Reserve Chair, a "dangerous man" to run the Fed. Sen. Tim Scott has consistently said the Basel endgame proposal would increase costs and decrease credit access for consumers and called for it to be withdrawn and properly re-proposed.
Meanwhile, FDIC Chair Martin Gruenberg, a Democrat, supports the Basel III proposal and looks forward to the agencies working together to bring it to a conclusion. Kathryn Judge, a professor at Columbia University, expressed disappointment that more than a year into the process, a re-proposal of the Basel III proposal is not yet out.
Industry leaders like Brian Moynihan, the CEO of Bank of America, have voiced concerns about the potential impact of increased capital requirements. Moynihan stated that a 10% increase could prevent the bank from making $160 billion in loans to small businesses and middle-market companies.
As the Federal Reserve continues its consultative and phased process, the agency’s efforts reflect an ongoing evolution rather than a finalized policy, with extensive stakeholder input shaping the final outcomes.
- The Federal Reserve, in its ongoing evolution of bank capital regulations, is inviting feedback on the enhanced supplementary leverage ratio (eSLR) proposal, which is expected to address finance-related matters and influence the business operations of large banks.
- Industry participants and academics have shown mixed reactions towards the proposed changes, with some arguing for higher capital requirements to ensure bank resilience, while others fear that increased financial burdens might constrain credit availability, impacting economic growth and essential banking services.
