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Basel Capital Proposal Update

May 7, 2024

As reported widely late last week, banking agencies appear to be targeting late summer for publication of final bank capital rules.

Why it matters: The proposed capital increases on $100 billion+ banks have come under intense industry and bipartisan scrutiny. Senior regulators have been indicating recently that significant changes to the proposal are likely forthcoming.

According to Bloomberg, the agencies are opting to revise the proposal rather than scrapping and restarting it, with a possible August 2024 finalization:

“In a sign that regulators are advancing in their push to finalize the plan, officials are preparing to release as soon as next week a compilation of data from banks on how the changes could affect aspects of their businesses, according to some of the people. That so-called Quantitative Impact Study, which collected year-end 2023 data from the nation’s eight largest banks, is supposed to help the Fed weigh the relative costs and benefits of each aspect of the proposed rule and the regulation as a whole.”

Both the content of a future rule and the timing of its release have been fodder for considerable debate within the financial sector:

• If changes to a regulatory proposal are sufficiently significant, the agencies may have to re-propose to give the public another opportunity to comment.
• However, the Biden Administration might not want delay issuance of a final rule in the event of a second Trump presidency.
• But further complicating the agencies’ consideration of timing is that, as discussed in last week’s CREFC Policy and Capital Markets Briefing, issuing a final rule so late into Biden’s term could subject it to the Congressional Review Act. (The CRA allows a new Congress to nullify rules issued within the last 60 legislative days of the prior Congress.)

Go deeper: The final rule will need the signoff of the Board of Governors, the OCC, and the FDIC.

• Four of the seven Fed Board Governors are Democrats, with the rest being Republican appointees. Three of the five FDIC Directors are Democrats, and the acting OCC head was appointed by Biden.
• Given the bipartisan pushback in Congress, regulator votes may not break down on traditional party lines.

CREFC submitted comments that generally opposed the proposal and offered specific feedback on key provisions. CREFC also led a joint real estate trade letter opposing the proposal.

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