- Key insight: Basel rewrite is seen as a standard banks largely accept.
- Expert quote: "I think the [bank trade groups] are fairly, but not totally satisfied," said Ian Katz, a managing partner at Capital Alpha Partners.
- Forward look: Future administrations may adjust levels, but overhauling the entire framework is less likely.
Federal bank regulators' latest capital proposal is shaping up to be a more durable framework that the banking industry largely views as workable, even as it continues to push for targeted tweaks.
Bank policy analysts, lawyers and lobbyists say regulators have largely heeded industry concerns — though banks this week continued to argue for additional adjustments. The industry stands to benefit both from more profit-amenable policies and from the certainty of a settled framework under a "bank-friendly" administration, even as some see room for future administrations to revisit specific elements of the standard.
"I think the [bank trade groups] are fairly, but not totally satisfied," said Ian Katz, a managing partner at Capital Alpha Partners. "Regulators might be the most satisfied because they've finally got this major step done with."
The revised Basel III endgame capital proposal implements a U.S. version of international rules struck by the Swiss city's eponymous
The Trump administration's bank regulators have
At a recent House hearing, Bank Policy Institute CEO Greg Baer's view on the rules focused on technical adjustments the industry wants, but he expressed satisfaction with the prospect of certainty itself.
"It is an underrated virtue of this set of proposals that the U.S. — and I would say in quite significant contrast to Europe — is going to be a place where people [who] invest in banks know what the rules are going to be," he
"Opposition to capital reforms was less intense than expected," TD Cowen policy analyst Jaret Seiberg said in a research note. "Many Democrats [at the hearing] were at worst neutral on the capital reforms with some suggesting support for changes."
"Some progressives did attack though this was nothing like we have seen in prior years," he continued. "We see that as a further indication that these capital reforms will be finalized."
Greg Lyons, partner at Debevoise & Plimpton, sees the revised Basel proposal as a work in progress, but one that is an improvement from the Biden-era rules.
Lyons stressed that both large banks and others still see areas for improvement, particularly given the complexity of the framework and the way in which rules can at times count risks in duplicative ways.
"I think they have come a long way from the last proposal, it's certainly a significant improvement," Lyons said. "I do think there are things … for the G-SIBs, but also for others that they want to kind of still tweak."
"Whenever you have that number of rules," he continued. "You're going to have inefficiencies and double counting and unintended results."
Lyons says regulators under the Trump administration have been more receptive to industry feedback, but that the dialogue is ongoing, with agencies "open to reasoned arguments," for tweaks to the final standards.
The pending proposal is a measured improvement from previous efforts, according to Joseph Lynyak, a partner at the law firm Dorsey & Whitney. He says previous efforts were at times "an overreaction to the banking crisis" of 2008 that "would have tied up capital in a way that could put U.S. banks at a disadvantage."
"I wouldn't call it seismic, but clearly there's movement," Lynyak said. "It's not an outrageous loosening of capital, but it does free up capital — which means more loans can be made."
Banks should be more free to conduct various activities, he argues, though the actual impact to lending from the additional free capital will depend on the size and type of firm.
"Both [banks large and small] benefit from freed-up capital, but large banks will continue doing big international deals [whereas] smaller banks will focus more on regional and local lending," Lynyak said. "I've been through many cycles, the pendulum has swung back toward a more liberal approach to capital requirements and I think they achieved that here."
While a number of bank regulations issued under the Biden administration were challenged in court or ultimately overturned by the Trump administration, sweeping future changes are less likely, according to Lyons. The interagency nature of the rule raises the bar for revisions, he says, while the sheer technical complexity of crafting bank-capital rules discourages wholesale rewrites.
"Because it's interagency, that makes it more difficult to change, every agency would have to sign off," he said. "It will be difficult for the agencies to kind of rewrite the rules again, because I think that's a significant lift."
As a result, any future administration is more likely to adjust calibration than overhaul the framework entirely.
"I would assume it'd be more the nature of … changing some of the capital levels or percentages," Lyons said. "I would be surprised if they kind of fundamentally change the construct."
