Key Takeaways:
Five US banking trade groups urged federal regulators on Thursday to further revise the March 2026 Basel capital proposal, warning that current draft rules could raise capital requirements for trading activities by as much as 89 percent.
The Bank Policy Institute, American Bankers Association, Financial Services Forum, Futures Industry Association, Equipment Leasing & Finance Association and Secured Finance Network submitted comment letters to the Federal Reserve, FDIC and OCC on June 18, the final day of the comment period. The groups broadly welcomed the March revisions — which lowered the overall capital burden on large banks by roughly 4.8 percent to 5 percent from the original July 2023 proposal — but argued the framework still overcapitalizes certain activities.
"The US prudential regulators' proposals on bank capital appropriately recognize the important role that central clearing plays in risk management," said Jacqueline Mesa, chief operating officer and senior vice president of global policy at FIA. "However, the framework should go further in recognizing the true economics of risk. Capital requirements should reflect the risk offsets that exist across related positions, rather than measuring exposures on a gross basis."
The March 2026 proposal replaced two earlier drafts — the July 2023 Basel III Endgame proposal and the G-SIB Surcharge Proposal — both of which drew widespread criticism for raising capital requirements beyond levels set by the Basel Committee on Banking Supervision. Wall Street's latest push centers on a core argument: the current framework could increase capital charges for trading activities by 30 percent to 89 percent, making it significantly more expensive for banks to market-make in US Treasuries and other fixed-income products. A joint letter from major trade groups on June 17 warned that wider bid-ask spreads and reduced liquidity in Treasury markets could follow if regulators do not bend further.
Where the Fights Are
FIA's comment letter offered targeted recommendations to improve what it called the "coherence and risk sensitivity" of the enhanced risk-based approach. The group praised several elements of the March proposal, including the exclusion of client-facing derivative exposures from the Credit Valuation Adjustment framework, permission to net settled-to-market and collateralized-to-market derivative exposures, and a new framework for cross-product netting. But FIA urged regulators to expand cross-product netting to include eligible margin loans and cleared house transactions, and to clarify that electing cross-product netting for risk-weighted assets does not automatically apply to Supplementary Leverage Ratio calculations.
On the G-SIB surcharge, FIA recommended additional revisions to the FR Y-15 reporting instructions so that derivatives exposures from cleared transactions are not counted toward the Cross-Jurisdictional Activity indicator. The group also sought confirmation that cross-product netting is not mandatory for inclusion in relevant G-SIB surcharge indicators that count derivative exposures.
ELFA and the Secured Finance Network pressed a separate set of concerns focused on asset-based lending. Their letters urged the agencies to address three areas: changes to credit conversion factors for commitments, the newly proposed definition of a "commitment," and the need to recognize non-financial collateral such as receivables, inventory and marketable equipment in determining capital requirements. Asset-based lending, they argued, is particularly critical for middle-market companies and businesses in cyclical industries that rely on collateral-based credit during economic downturns.
The Crypto Dimension
Buried within the Basel framework is a classification system for crypto exposures. Group 2 crypto assets — which include most tokens that do not meet strict criteria for tokenized traditional assets — carry a risk weight of 1,250 percent, effectively requiring banks to hold $1 in capital for every $1 of such assets. The Basel Committee on Banking Supervision is currently reviewing this framework amid sustained industry pushback. If the committee softens its stance, it could open the door for traditional financial institutions to hold and trade digital assets without facing punitive capital charges.
What's at Stake
The gap between what Wall Street wants and what regulators are offering sits somewhere between 4.8 percent and 89 percent, depending on the activity. If the agencies do not budge further, banks will likely reduce market-making in Treasuries and other fixed-income products, squeezing liquidity during stress periods. If they accommodate the industry's requests, bank profitability and lending capacity could improve, though regulators must balance that against the post-2008 imperative to prevent over-leverage. The agencies are now reviewing the comment letters before issuing a final rule, with no timeline yet announced.
This article is for informational purposes only and does not constitute investment advice.
