WASHINGTON – Major financial institutions appear poised for a regulatory victory as the Trump administration prepares to announce revised bank capital requirements that will be less stringent than previously proposed, though several obstacles could still delay final implementation.
Federal banking regulators plan to release updated proposals on Thursday that will require large banks to maintain slightly lower capital reserves, according to Federal Reserve Vice Chair for Supervision Michelle Bowman’s announcement last week. This represents a dramatic shift from the original 2023 proposal that would have forced some major banks to increase their capital buffers by as much as 20 percent.
The updated regulations will modify the so-called “Basel” rules and “GSIB surcharge” requirements, changing how financial institutions calculate the funds they must set aside to cover potential losses. These changes come after an intensive multi-year lobbying effort by Wall Street firms to roll back post-2008 financial crisis regulations they claim are hampering economic growth, though opponents argue the modifications could weaken protections at a time of increasing global and credit market risks.
Despite banks moving closer to their desired outcome, industry experts and analysts predict the intricate approval process could extend through most of the year as financial institutions examine detailed provisions and regulators work through various complications, including potential changes in Federal Reserve leadership and White House oversight.
“You’re going to get several hundred pages, possibly a thousand pages of documents,” explained Ian Katz, managing director at Capital Alpha Partners. “There’s just going to be so much to go over, and some of it is highly technical.”
While Bowman indicated the agencies intend to move swiftly, Truist Securities analysts predicted last week that final rules likely won’t be completed until early 2027.
The Basel framework establishes international capital standards, determining how banks must allocate resources for credit, market, and operational risks. Michael Barr, Bowman’s Democratic predecessor, introduced the initial draft in July 2023, citing the Silicon Valley Bank failure earlier that year as justification for increased capital requirements affecting more than 30 institutions with assets exceeding $100 billion.
Banking executives argued they already maintained adequate capital levels and mounted an unprecedented opposition campaign, threatening legal action and gaining support from numerous lawmakers while creating disagreement among regulatory agencies. This resistance successfully pushed the issue into the current administration, which has generally aligned with industry positions.
Bowman stated last week that the modifications would better align requirements with actual risk levels.
The revised Basel proposal eliminates several provisions that banks strongly opposed, including a requirement to follow the more restrictive of two risk capital calculation methods, which particularly disadvantaged major trading firms. The new version will also be more lenient toward fee-generating operations, such as credit card businesses, that faced strict new operational risk standards.
However, banks continue seeking clarification on other contentious matters, including the degree to which they can utilize internal models for market risk assessment rather than regulator-prescribed models, and capital requirements for non-publicly traded securities.
The Federal Reserve also intends to modify the GSIB surcharge applied to the eight highest-risk global U.S. banks by updating economic factors and adjusting short-term funding risk calculations.
Financial institutions facing the largest GSIB surcharges, including JPMorgan, Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley, may see benefits, according to some analysts, though industry officials caution that impacts could vary significantly between firms.
“Not all large banks are the same,” noted Brian Gardner, chief Washington policy strategist at Stifel, adding that industry reaction will depend on how the proposal affects particular business lines.
The new proposals may also face political hurdles. Banks will have 90 days to submit comments to the agencies, which must jointly approve any additional modifications. At the Federal Reserve, this requires approval from its bipartisan board, where Democratic members might oppose a final version they consider too lenient, according to industry sources.
The rules will also need endorsement from Kevin Warsh, Trump’s nominee to replace Fed Chair Jerome Powell. While Warsh hasn’t publicly addressed the capital rule changes, he generally supports reduced regulation. Under a 2025 Trump executive order, the final rule must undergo White House Budget Office review, creating another potential complication.
Nevertheless, with banks and regulators now aligned, University of Michigan professor Jeremy Kress believes it should be “much easier” for regulators to complete the process.
