On July 27, the prudential bank regulators – the Federal Reserve, Office of Comptroller of the Currency, and Federal Deposit Insurance Corporation – announced a proposal for a new regime of capital standards for banks with more than USD100 billion in assets^[2],[3]_. The Basel endgame is a framework that sets uniform international standards for bank capital adequacy, stress testing, and liquidity requirements established by the Basel Committee on Banking Supervision (BCBS). This most recent proposal would be the most comprehensive prudential regulatory standard change for banks in almost a decade.

The Basel rules would set a new industry standard for measuring risk and other activities and would dictate how conservative banks must be in measuring their risk while forcing them to hold more capital in case of losses – capital that could otherwise be put to work in the form of small business lending, consumer mortgages, etc. Under the proposal, banks with at least USD100 billion in assets would have to boost the amount of capital set aside by an estimated 16%^[4]. The eight largest banks face about a 19% increase, with lenders between USD100 billion and USD250 billion in assets seeing as little as 5% more, according to agency officials^[5].

The plans, as proposed, would spare smaller institutions such as community banks, but it would increase standards for larger, regional lenders that previously were considered too small to be subject to the most stringent capital rules. Of course, these proposals come shortly after the failure of Silicon Valley Bank, Signature Bank, and First Republic which raised questions about the Fed’s previously “tailored” capital levels for smaller and mid-sized banks. “Today’s proposal also represents an effort to recast the narrative about the March 2023 bank failures, which resulted from a failure to manage and examine interest rate risk and deposit concentration risk,” the Bank Policy Institute, an industry trade group said in a statement.^[6]