WASHINGTON - U.S. banking regulators under President Donald Trump plan to publish this month a fresh draft of broad capital requirements that would change how large banks calculate risks and, consequently, how much capital they need to hold to absorb potential losses. The package, commonly referred to as the "Basel Endgame," has been controversial since it was first introduced in 2023 and remains the subject of sharp disagreement between regulators, bankers and policy critics.
Initially unveiled under the Biden administration, the 2023 proposal prompted a strong pushback from major banks, which argued the changes would curtail lending and harm the broader economy. Opponents contend that banks are already well capitalized and that the proposed revisions would loosen rules that were tightened after the 2007-09 financial crisis - at a time when markets face additional strains from geopolitical tensions tied to the Iran conflict and from weakening conditions in private credit markets.
What is the Basel III 'endgame'?
The Basel Committee on Banking Supervision, convened by the Bank for International Settlements in Basel, Switzerland, sets coordinated minimum capital standards for banks so they can withstand loan losses during economic stress. Following the 2007-09 global financial crisis, the committee agreed a package known as Basel III, which introduced a range of capital, leverage and liquidity requirements.
Regulators around the world have spent years implementing those standards, and the so-called "endgame" is the final phase of that Basel III effort, an iteration agreed in 2017. In the United States, the Federal Reserve is leading the initiative in coordination with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
Why are Trump administration regulators issuing a new draft?
The original draft released in 2023 - overseen by Michael Barr, who served as the Fed’s vice chair for supervision under the prior administration - proposed raising capital levels. Fed officials at the time estimated the change would increase required capital by about 16 percent, while big banks warned the new calculations could lift their capital needs by as much as 20 percent. That disparity surprised many in the industry, which had expected the rule to reallocate capital rather than materially raise overall requirements.
The industry responded with an unprecedented lobbying and public relations campaign, including advertisements during high-profile sporting events, arguing that the rules were unnecessary given banks' existing capital positions and that they would impede lending to households and small businesses. Some banks also threatened legal action. Barr pledged to revise the rule, but the three U.S. regulators failed to reach consensus before the matter moved into the Trump administration, where officials have generally taken positions more aligned with the banking industry.
What do the new proposals aim to achieve and what effects might they have?
At the core, the U.S. proposal seeks to change how large banks measure credit risk, market risk and operational risk - the principal inputs that determine required capital. Federal Reserve Vice Chair for Supervision Michelle Bowman said the revised draft would "right-size" requirements to better capture risks and reduce duplicative overlays.
Part of the objective is to offer relief for banking activities that regulators view as less risky and that they want to encourage. Bowman specifically mentioned mortgage lending as an area that could receive more favorable treatment under the revised framework.
For smaller institutions, the plan would create a new standardized risk measure intended to "moderately reduce" capital requirements and to provide incentives to lend. Overall, Basel is still expected to raise capital modestly for the largest and riskiest firms. However, Bowman said that when the Basel changes are considered together with revisions to the surcharge applied to globally systemically important U.S. banks - the GSIB surcharge - capital at the largest Wall Street banks would fall "a small amount."
How does the GSIB surcharge factor into the revisions?
The GSIB surcharge requires a set of very large U.S. banks deemed globally risky to hold additional capital beyond standard requirements. Banks have long argued the calculation for that surcharge needs updating.
Bowman said the Fed plans to revise certain inputs to the GSIB calculation that have been fixed since 2015, adjusting them to account for economic growth so the measurement more accurately reflects a bank's size relative to the global economy. The Fed had previously considered such changes, but work on the GSIB calculation stalled amid the broader Basel debate. Bowman also indicated the Fed intends to alter how it assesses short-term funding risks, which she said have become more costly over time than originally designed.
What are the main criticisms?
Critics accept that questions of capital allocation are legitimate, but many argue the overall amount of capital in the banking system is broadly appropriate and that weakening capital and liquidity measures risks eroding the safeguards established after the 2007-09 crisis. On Thursday, Democratic Senator Elizabeth Warren, who helped shape those post-crisis rules, said the proposed changes render the economy more vulnerable.
Academic analysis cited in prior reporting has found no clear evidence that higher bank capital requirements have led to reduced lending by U.S. banks. Stephen Cecchetti, a professor at the Brandeis International Business School who contributed to post-crisis Basel work and who has examined aggregate Federal Reserve loan data over more than a decade, reached that conclusion in research highlighted in 2024. Those findings are used by some observers to argue higher capital does not necessarily translate into less lending.
What happens next?
Bowman said the Federal Reserve will vote on the revised proposals in the near future and that the public will have the opportunity to comment. Regulators have signaled a desire to move swiftly, but they also acknowledge the proposals are voluminous and complex. Finalizing the rules could therefore take many months, and the public comment period will be an important stage in determining how the proposals are adjusted before any final rule is adopted.
As the debate continues, the outcome will influence how U.S. banks allocate capital across different activities and will shape regulatory incentives around mortgage lending, short-term funding, and how the riskiest global firms are measured for surcharge purposes. The proposals' trajectory will be watched closely by banks, markets, and policymakers because of their implications for lending and financial stability.