In July 2023, US regulators proposed rules estimated to raise the core equity that large banks must hold by 16 percent. On March 19, 2026, the Federal Reserve, the OCC and the FDIC proposed the opposite. Together with changes to the Fed’s stress tests, requirements for the largest banks would fall by 4.8 percent. Banks set dividends, buybacks and lending plans years ahead, so how long the cut lasts matters as much as its size.
Comments closed on June 18, and the stress test changes were finalised in September. The capital rules are the last piece still to come.
What the Proposals Do
Two proposals are joint. One rewrites the Basel III rules for the largest, most international banks. The other revises the simpler framework used by everyone else. The third, from the Fed alone, resets the extra charge on the biggest global banks. Fed staff estimate the Basel III changes add 1.4 percent to the largest banks’ requirements and the surcharge changes remove 3.8 percent. That leaves a net cut of 2.4 percent before stress test changes. Mid-sized banks would see a 3.0 percent cut, or 5.2 percent with stress test changes. Banks under $100 billion would see a 7.8 percent cut.
Staff call the reduction moderate. Their memo notes that large banks have more than doubled their capital since the financial crisis, an increase of more than $1 trillion. It accepts the cut could weaken resilience but does not expect that effect to be material.
Governor Michael Barr, who led the 2023 plan as Vice Chair for Supervision, voted against all three proposals. In his statement, he called the reductions “unnecessary and unwise” and counted more than 20 material departures from the Basel III standard. One of them removes the limit on how far banks’ own models can cut capital for trading risk. Adding in recent changes to the leverage rules, he put the cut for the biggest global banks at 6.0 percent, or $60 billion.
How the Board Has Voted
The March proposals passed 6 to 1. Chair Powell, Vice Chair Philip Jefferson, Vice Chair for Supervision Michelle Bowman and Governors Lisa Cook, Stephen Miran and Christopher Waller voted in favour. Barr was the only dissent. The stress test rules passed by the same margin in September, again with Barr the only vote against.
That margin is not guaranteed. In March, the Board split 4 to 3 on findings that cleared a Morgan Stanley Bank exemption for an internal reorganisation involving Morgan Stanley Europe SE. Jefferson, Cook and Barr dissented. Cook’s vote for the stress test rule also came with a warning. If the tests become less severe or overly predictable, she wrote, the Board may need to consider “other options to maintain resilience”. The Board itself has changed since March. Kevin Warsh now chairs it, and Powell sits as a governor.
The Legal Record
Better Markets sued the Fed Board and Bowman on September 10 in federal district court in Washington. The group alleges that Fed officials manipulated the rulemaking process and record for the 2026 capital proposals. The claims have not been tested in court.
The relief is real but limited: 4.8 percent for the largest banks and 7.8 percent for the smallest. Its staying power is weaker. Suppose the rule is finalised 6 to 1, over a dissent listing more than 20 departures from Basel III, with a lawsuit already challenging the record. Any future Board would then have a ready case for reopening it. A bank that treats the freed capital as permanent is betting on the politics as much as on the rule. Prudent capital planners will hold some of it back until the rule has survived a change of leadership.
