Fed Reverses Basel III Final Rules, Eases Capital Requirements for Large US Banks

We have learned from sources that the Fed is restarting the process of drafting new risk capital rules, which will reduce the burden on large US banks compared to the previous plan under the Biden era.

According to informed sources, Vice Chair Michael Barr is leading the design of a new proposal aimed at simplifying the way banks calculate their capital requirements.

Informed sources revealed that regulatory agencies expect to abandon the original proposal published in 2023, which consisted of 1087 pages of Basel III final rules, and aim to release the new rules as early as the first quarter of 2026.

Basel III final rules were designed to clarify how much capital banks need to set aside to withstand economic downturns. The original proposal put forth by Barr, former Vice Chair of the Fed, would have required large US banks to hold more capital, with a 19% increase initially, and later revised to 9%. With Trump's election in November 2024, the final implementation process stalled.

The Fed will work with the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and other major US banking regulatory agencies to draft the new rules. The expected capital increase is expected to be lower than the revised level of 9%.

Before this effort begins, bankers and lobbyists have just gathered in Washington for a comprehensive evaluation meeting on large bank capital frameworks hosted by the Fed, aiming to provide industry feedback to regulatory agencies before they start drafting new rules.

Barr has sharply criticized the original Basel III final rules proposal, saying it poses an "over-calibration" risk and is even more stringent than the Basel standard set by the International Monetary Fund (IMF).