Financial executives from BofA, Morgan Stanley, and U.S. Bank advocate for a comprehensive assessment of capital regulation policies
The Federal Reserve held a capital framework conference on Tuesday, bringing together industry players, academics, analysts, former regulators, and other stakeholders. The conference aimed to review the capital framework in an integrated manner, signalling regulators’ openness to a more data-driven, consultative approach involving industry perspectives.
In light of ongoing debate, the Federal Reserve, under Vice Chair for Supervision Michelle Bowman, is actively working on revising the capital framework. The original 2023 "Basel Endgame" proposal, which would have raised capital requirements by nearly 20%, faced strong opposition from banks and was effectively stalled. The revamped Biden-era proposal, which dropped the increase in capital requirements to 9%, faced criticism from both Democratic and Republican regulatory officials.
During the final panel, Big bank CFOs called for transparency, efficiency, and a comprehensive approach in potential areas of capital framework reform. John Stern, the CFO of U.S. Bank, noted that risk-weight considerations in capital decisions can impact how banks go to market, interact with clients, and make pricing decisions. Morgan Stanley CFO Sharon Yeshaya spoke at the conference, advocating for a more holistic approach to the capital framework.
Yeshaya compared the current web of bank rules to an old New York City apartment that's been painted over many times, emphasizing the need for a comprehensive and integrated approach. Alastair Borthwick, the CFO of Bank of America, stated that the interrelation of the capital rules can get "more conservative, because they're greater than the sum of the individual rule."
The July 2023 capital requirements proposal aims to align the U.S. with Basel III. The current status of the Basel III proposal for U.S. banks is that the U.S. federal banking agencies have proposed final Basel III rules, with implementation planned to begin on July 1, 2025, and full compliance by July 1, 2028. The proposals include a transition period and are expected to increase common equity Tier 1 capital requirements by approximately 16% on aggregate for affected banks, mainly impacting the largest and most complex institutions.
However, the proposal has faced mixed reactions from regulators, banks, and other stakeholders, with some criticizing it as too stringent and others advocating for balance between financial safety and cost. In response, the Federal Reserve and other agencies are engaging stakeholders and expect to introduce a less restrictive, refined proposal soon, reflective of the regulatory and political priorities influenced by Trump-appointed officials who favor deregulation and innovation. Public comments on current proposals remain open through mid-August 2025, indicating ongoing stakeholder engagement.
The capital framework for U.S. lenders includes risk-based capital requirements, leverage requirements, stress testing, and a capital surcharge for the biggest, most complex banks. The conference did not discuss the specifics of the OpenAI's AI adoption by banks or the purchase licensing rights for any specific regulations or policies.
In summary, the Basel III capital framework for U.S. banks is under active review and revision. The original 2023 "Basel Endgame" proposal is being reconsidered with anticipated modifications to ease capital requirements while maintaining financial stability. Matthew Bisanz, a partner at law firm Mayer Brown, expects meaningful change to the capital framework. The Federal Reserve and other agencies are engaging stakeholders and expect to introduce a less restrictive, refined proposal soon, reflective of the regulatory and political priorities influenced by Trump-appointed officials who favor deregulation and innovation. Public comments on current proposals remain open through mid-August 2025, indicating ongoing stakeholder engagement.
- Financial institutions, such as U.S. Bank and Morgan Stanley, have called for transparency and a comprehensive approach in the potential areas of capital framework reform, highlighting the industry's involvement in shaping the capital framework.
- The capital framework revision by the Federal Reserve encompasses the finance sector, including banks, as they engage in the process, with concerns over the balance between financial safety and cost being a key point of discussion.
