Federal Reserve Vice Chair for Supervision Michelle Bowman said the agency plans to propose rules in the coming weeks designed to implement the final phase of its Basel III capital framework for the U.S. while speaking at the Cato Institute Policy Forum: Basel III and Bank Capital Rules in Washington, D.C., on March 12.
She said the agency is working with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation on modernizing capital requirements through joint rulemakings.
“These changes to the capital framework eliminate overlapping requirements, right-size calibrations to match actual risk, and comprehensively address long-standing gaps in our prudential framework,” Bowman said. “The result is more efficient regulation and banks that are better positioned to support economic growth, while preserving safety and soundness.”
The proposals will incorporate revisions to the enhanced supplementary leverage ratio and the stress testing framework to improve transparency and reduce volatility, Bowman explained. The banking regulators are aiming to align requirements more closely with an institution’s actual risk by streamlining the Basel III and global systemically important bank surcharge pillars described in earlier rulemakings.
Bowman said the updates also will extend to smaller institutions, including enhancements to the community bank leverage ratio to reduce regulatory burdens while maintaining strong capital levels.
“The proposed changes address critical categories of bank lending, including mortgages, consumer lending, and business lending,” she said. “These changes moderately reduce requirements and align the standardized approach with the Basel III proposal. This ensures greater consistency and a level playing field among all banks. The changes better align requirements with risk, increasing efficiency, and ensure the availability of credit to households and businesses. At the same time, all U.S. banks would remain subject to robust capital standards.”
The Consumer Bankers Association and National Bankers Association released a joint statement, thanking Bowman for her remarks on bank capital requirements.
“Thank you to Vice Chair Bowman for recognizing an important reality: capital requirements should be strong and resilient while also reflecting the actual risks in the banking system,” the trade groups said. “A well-calibrated framework is essential not only for financial stability, but for ensuring America’s leading Main Street banks can continue meeting the needs of the consumers and communities they serve.”
Previous efforts to implement a Basel III capital framework met with strong criticism from the financial services industry and division among the prudential regulators before the Fed ultimately decided to suspend its work on the standard.