Banks make the case for 'single, risk-based' capital standard

• Key insight: Banks want a single, risk-based capital calculation, which they say would replace the more complicated arrangement now in place and free up capital for lending.
• Supporting data: Dual capital calculations exceed global standards, banks say.
• Forward look: Regulators will consider these suggestions as they reissue rules to reduce overlaps, boost competitiveness and phase in capital changes gradually.

Banks are urging federal banking regulators to simplify and relax upcoming capital rules, warning that current proposals could overburden lenders and therefore constrain credit to households and businesses.

In a joint comment letter to the Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corp., Capital One, PNC, Truist, and U.S. Bancorp said the most recent Basel draft contained duplicative capital calculations, standards that exceed international baselines and simplistic asset thresholds. The comment period ended on Oct. 23.

"We are currently operating under a high degree of uncertainty about our future capital requirements. As a result, we are currently maintaining larger internal capital buffers (i.e., management buffers) to account for this uncertainty and to satisfy market expectations that we are prepared for the forthcoming Basel III Endgame requirements," the banks wrote. "The sooner there is clarity on a future path of U.S. capital requirements for large regional banks that appropriately balance safety and soundness with the role of the banking system in promoting economic growth, the sooner we can all plan accordingly and deploy this excess capital to increase lending and support the broader U.S. economy"

The comment letter comes in response to the Trump administration's cross-agency review of regulations. As part of the push, the Federal Deposit Insurance Corp., Federal Reserve and Office of the Comptroller of the Currency are inviting input from interested parties aiming to identify outdated or unnecessary requirements, as requested by the Economic Growth and Regulatory Paperwork Reduction Act of 1996. That law mandates regulators periodically look back and modify or eliminate redundant or outdated rules. 

The agencies are also considering broad revisions to the bank capital framework, including implementation of the Basel III Endgame rules envisioned by the international Basel III accords, which the Biden administration attempted to finalize but fell short in the face of stark opposition from the banking industry. 

The four banks urged regulators to pare back the forthcoming U.S. capital framework by eliminating a proposed dual capital calculation for regional banking organizations. Under current rules, the largest firms — known as Category I and II firms — must calculate capital under both the standardized and advanced approaches, while the Basel III Endgame proposal issued in the Biden administration would have required all but the smallest banks to calculate capital under both the standardized and enhanced risk-based approaches.

Federal Reserve

Fed proposal would publish full stress test models

October 24, 2025 2:11 PM

U.S. bank regulatory categories classify institutions based on size, complexity and systemic significance. The largest and most complex banks — those designated as global systemically important banks, or G-SIBs — are known as Category I; Category II banks are those with significant domestic and cross-border activity; Category III firms, including the signers of the letter, are large domestic banks with significant assets or nonbank exposures; and Category IV banks are those midsize banks with a meaningful U.S. presence but limited systemic impact. Smaller regional banks fall outside these categories and have the lightest regulatory requirements.

The banks argue the Biden-era Basel III Endgame proposal approach is "redundant and inefficient" and call for any future approach to instead opt for a single, risk-sensitive approach.

"Each banking organization should be required to calculate risk-weighted assets using a single approach that is appropriately calibrated to the risks relevant to the organization, given the size and scope of its activities," the banks wrote. "We believe that eliminating the dual capital calculation and allowing a single risk-based capital calculation would be consistent with the Congressional mandates of Section 171 of the Dodd-Frank Act (known as the Collins Amendment) and the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 (EGRRCPA)."

The banks are asking the regulators to also reduce overlap between the minimum risk-based capital requirements and the stress capital buffer, saying that even if U.S. rules simply matched international Basel standards, the combination of minimum requirements and the SCB still makes U.S. banks hold more capital than their global peers, thus reducing their competitiveness. 

Those comments echo sentiments expressed by Fed Vice Chair for Supervision Michelle Bowman, who argued last year the SCB overlaps with other capital requirements because some elements of the stress test — like the global market shock and operational risk element — cover risks that are also captured under Basel's market risk and operational risk rules. Bowman said this can lead to double-counting, meaning a bank could be required to hold more capital than the actual underlying risk would warrant. The banks recommend recalibrating the ERB so that overall capital requirements reflect true risks.

"Because the current U.S. capital rules produce risk-based capital requirements that are based both on minimum capital requirements and the SCB, which does not exist in the international Basel Framework," the banks wrote. "The capital requirements applicable to U.S. banking organizations are inherently higher than those applicable to non-U.S. banking organizations subject to capital requirements based on the international Basel Framework."

The banks also recommend improving the tailoring of capital requirements by indexing category thresholds to growth in the economy, measured by gross domestic product. They say this would prevent banks from being automatically pushed into more onerous regulatory classifications due to blunt metrics like balance sheet growth, saying such frameworks should be flexible and not impose uniform expectations.

The banks further request that compliance periods for capital requirements be extended and phased in slowly when a firm moves into a higher category. Under the current tailoring rules, banks have two quarters to comply. The banks propose extending the transition period to eight quarters with a simplified phase-in schedule. This approach, they argue, would provide firms adequate time to comply while reducing unnecessary disruptions to lending and capital planning.

"We support the Agencies' efforts to make the U.S. capital rules more risk-sensitive and comparable to international standards to promote a level playing field," they wrote. "We encourage the Agencies to act expeditiously and transparently to implement the Basel III Endgame in a way that appropriately recognizes the differences between the U.S. and foreign financial sectors, puts U.S. banks on an equal competitive footing with non-U.S. banks and U.S. non-bank financial services competitors, is appropriately tailored based on the varying sizes and complexities of U.S. banking organizations, and does not result in an unjustified increase in capital requirements."

The American Bankers Association in its comments echoed that sentiment, saying in their comment letter that the regulators should fix the, as they say, "fundamentally flawed" Biden-era proposal and take a more holistic view of capital for large banks.

"As the agencies consider next steps for a new proposal, they should consider the framework more holistically, removing gold-plating in the original proposal, addressing the duplication with the stress testing framework, and addressing known issues with the G-SIB requirements," the ABA's Senior Director of Prudential Regulation Tyler Mondres wrote. "Including the need to index the U.S. Method 2's fixed coefficients to nominal GDP to account for the inflationary effect of economic growth on firms' scores."

The Wisconsin Bankers Association submitted its own comments in response to the EGRPRA review. On capital regulations, WBA, like its bank industry colleagues, advocates that capital rules for large institutions be flexible, but urged regulators to ensure they do not impose indirect burdens on smaller banks.

"These institutions play a critical role in supporting market stability, liquidity, and economic growth[,] WBA encourages the agencies to ensure that capital standards for large institutions are appropriately calibrated to reflect their complexity, while also preserving flexibility to support innovation, competitiveness, and responsiveness to market conditions," they wrote. "However, WBA urges the agencies to ensure that capital rules designed for large banks do not impose unintended downstream burdens on smaller institutions through indirect application or overly broad implementation."

The Institute of International Bankers in its comment letter also advocated for tailoring U.S. capital requirements so large banks are not treated like G-SIBs, particularly Category III and IV banks and U.S. intermediate holding companies of foreign banks. IIB says it opposes broad operational risk capital requirements for these banks, arguing they are burdensome and redundant.

"Category III and IV banking organizations provide important financial services in the United States and present a risk profile that should be subject to less onerous capital requirements than Category I banking organizations," IIB wrote in the letter. "Appropriately tailored capital requirements can help foster a competitive and healthy banking and financial services landscape, the benefits of which accrue to U.S. consumers, investors and businesses."