The Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, and the Office of the Comptroller of the Currency (OCC) have jointly issued three proposals designed to modernize the regulatory capital framework for banks of all sizes. These proposals aim to streamline capital requirements, ensure that regulatory capital better reflects the risks banks undertake, and maintain the overall safety and soundness of the U.S. banking system.
Following the global financial crisis, the agencies significantly enhanced the banking system's resilience. This was achieved by increasing both the quantity and quality of required loss-absorbing capital and by introducing stress testing requirements for large banks. Experience gained over the past decade has indicated that certain aspects of the existing framework could be improved without compromising safety and soundness.
The first proposal is primarily intended for the largest and most internationally active banks. Its objective is to enhance the capital framework by improving its sensitivity to risk, reducing regulatory burden, and fostering greater consistency in how capital requirements are applied across these institutions. This proposal also incorporates the final components of the Basel III international regulatory agreement.
Under this proposal, these large banks would utilize a single set of calculations to determine compliance with risk-based capital requirements, moving away from the current dual-calculation approach. Furthermore, the proposal aims to refine the calibration of the framework to more accurately capture credit, market, and operational risks. Banks that are not designated as the largest or most internationally active would have the option to adopt this modernized approach.
The market risk component of this first proposal would specifically apply only to banks that engage in significant trading activities, acknowledging that not all banks have substantial exposure to market volatility through trading operations.
The second proposal is generally designed for all banks except for the very largest institutions. Its goal is to better align capital requirements for traditional lending activities with the associated risks, while simultaneously preserving the framework's overall simplicity. In line with the first proposal, this second proposal seeks to reduce disincentives for mortgage lending by modifying the capital requirements for originating and servicing mortgages.
These proposed modifications for mortgage servicing would also extend to banks that currently adhere to the community bank leverage ratio framework, ensuring a consistent approach for these specific activities. Additionally, this proposal would require certain large banks, after a transition period, to incorporate unrealized gains and losses from specific securities into their regulatory capital calculations.
The third proposal, originating from the Federal Reserve Board, focuses on improving the measurement of systemic risk. This is particularly relevant for determining the additional capital requirements for the largest and most complex banks, which pose a greater potential risk to the overall financial system.
Collectively, the agencies anticipate that these proposals may lead to a modest decrease in the overall amount of capital held by the banking system. However, they emphasize that capital levels would remain substantially higher than they were before the financial crisis. In aggregate, the proposals are expected to result in moderate reductions in capital requirements for large banks and modest reductions for smaller banks, reflecting their more traditional business models and lending activities.
The Federal Reserve is also making aggregated data available that informed the development of these proposals, providing transparency to the public and stakeholders. The agencies are inviting public comment on all three proposals, with the deadline for submissions being June 18, 2026.
