Regulators Scrap the 2023 Capital Plan and Start Over — With Lower Numbers
The Fed, OCC and FDIC issued three proposals in March that rescind the earlier Basel III endgame framework and would modestly reduce overall capital in the banking system.
WASHINGTON — The three federal banking agencies issued a package of proposals on Thursday that would rewrite the capital rules governing American banks, formally rescinding the 2023 framework that stalled after industry opposition and replacing it with requirements the agencies themselves describe as modestly less demanding.
The Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation released three separate proposals: one implementing the international Basel III revisions agreed in 2017, one revising the surcharge applied to the largest global banks, and one covering the standardized approach to risk weighting.
What changed from 2023
The earlier attempt would have raised capital requirements for large banks substantially. Banks argued the increases were unjustified by loss experience and would push activity toward non-bank lenders — an argument that gained force as private credit funds grew into a multi-trillion-dollar industry.
The new package moves in the opposite direction. Fed Vice Chair for Supervision Michelle Bowman, who previewed the proposals in a speech a week earlier, said large banks would see a small reduction in requirements and smaller institutions somewhat larger reductions. The agencies expect aggregate capital in the system to decrease modestly.
The argument for
Supporters make three claims. Capital requirements should reflect measured risk rather than a supervisory preference for buffers. The 2023 framework's operational risk charge in particular penalized fee-based businesses in ways unconnected to loss history. And activity pushed out of the regulated banking system does not disappear — it migrates somewhere less visible.
The argument against
Critics point to the timing. The proposals arrive while credit stress is emerging in private credit, in commercial real estate and among specialty lenders, and while several regional banks have disclosed losses from lending arrangements that turned out to involve alleged fraud.
Reducing capital as the credit cycle turns is a bet on the accuracy of risk models that have historically been most wrong at exactly this point in a cycle.
Next steps
Comments on the proposals are due in June. Final rules, if adopted broadly as proposed, would phase in over several years — meaning the practical effect on lending capacity arrives well after the current credit cycle resolves itself one way or the other.
