US Basel Rule Revisions: Banking Capital Requirements Under Review

Overview of Basel Rule Revisions

The U.S. Federal Reserve and other regulators plan to propose substantial Basel rule revisions that could reshape bank capital requirements significantly. Expected on September 19, these changes may extend over 450 pages. The revisions primarily address operational risk provisions, aiming to decrease the required capital allocations for business lines like wealth-management services and specific credit-card operations.

Impact on Larger Banks

Furthermore, the upcoming proposals are set to lessen market-risk requirements for larger banks, allowing them more flexibility regarding mortgages and tax-equity exposures. The proposed measures are a response to criticisms of the original Basel III rules.

Background Context

Regulators initiated the Basel III framework following the financial crisis of 2007-2009, which highlighted the need for stringent rules on capital allocation. In July 2023, the Federal Reserve, alongside the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, invited feedback on previous proposals. Ultimately, the rules aim to change how banks quantify risk and determine necessary capital buffers.

Continuing Discussions

Banks have resisted earlier proposals that would increase required capital for larger institutions. This pushback has led regulators to revise plans, with expectations that these changes will significantly lessen capital implications for bigger firms. The FDIC, Fed, and Office of the Comptroller of the Currency are still considering various stakeholder comments.