Federal Banking Regulators Set to Release Revised Capital Requirements Thursday

Federal banking regulators will announce revised capital requirements Thursday that are expected to be less stringent than previously proposed rules. The changes could free up billions of dollars for major banks to use for lending and shareholder returns.

WASHINGTON – Federal banking regulators under President Donald Trump’s administration are preparing to announce revised capital requirements Thursday that will be significantly less strict than earlier proposals, marking a major win for large financial institutions.

The new draft rules, part of what’s known as the “Basel” framework, are anticipated to slightly decrease the cash reserves that major banks must maintain as a buffer against potential losses, according to Federal Reserve regulatory leader Michelle Bowman’s comments last week. This represents a dramatic shift from the original 2023 proposal that would have imposed substantial increases on banking institutions.

Three key regulatory agencies – the Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency – will vote to approve the Basel proposal Thursday morning before opening a public comment period. This action will likely trigger intense lobbying efforts as banks work to understand how the new requirements will affect their competitive positions.

The regulatory changes come after years of sustained pressure from Wall Street institutions seeking to roll back restrictions implemented following the 2008 financial meltdown, which they argue are hampering economic growth. While Bowman stated the modifications will better align requirements with actual risk levels, opponents contend the changes will weaken financial system protections during a time of increasing geopolitical and private credit threats.

“The initial proposals were pretty punitive and to their credit the regulators have taken their time to try to get it right. Who knows if it will be perfect but certainly they are listening,” said KBW analyst Chris McGratty.

For years, regulators have worked to implement the “Basel Endgame,” representing the final component of international capital standards developed after the financial crisis. These standards focus on how financial institutions evaluate and distribute funds to address credit, market and operational risks.

Michelle Bowman’s Democratic predecessor, Michael Barr, had pushed forward a plan that would have increased capital requirements for certain banks by up to 20%. However, financial institutions mounted an extraordinary opposition campaign that successfully influenced numerous legislators and created disagreement among regulators. This resistance delayed the project until the Trump administration took office, which has aligned with industry positions.

The Federal Reserve also intends to propose adjustments Thursday to the “GSIB surcharge” imposed on the eight highest-risk global U.S. banks by updating economic calculations and modifying how short-term funding risk is assessed. Together, these modifications should result in major bank capital requirements either decreasing slightly or remaining unchanged.

Morgan Stanley analysts estimated this month that large banks currently maintain approximately $175 billion in surplus capital, and regulatory clarity could enable them to begin utilizing those funds for lending activities and stock repurchases.

McGratty noted that the relaxed capital requirements would be far less burdensome for banks compared to the previous proposal, “but the devil will be in the details.”