Fed Develops Simplified Capital Rule to Ease Burden on Big Banks

According to a report by Bloomberg News, the Federal Reserve has begun developing a new risk-based capital rule that aims to ease the burden on the largest U.S. banks. The central bank is largely scrapping the original 1,087-page proposal from two years ago and plans to unveil a simplified version as early as the first quarter of 2026.

The new rule is being led by Vice Chair for Supervision Michelle Bowman, who is working to streamline how banks calculate their capital requirements. This comes as a departure from the more complex Biden-era approach, which the banking industry had lobbied against.

The "Basel III" standard, agreed upon after the 2007-09 global financial crisis, includes numerous capital, leverage, and liquidity requirements that regulators have been working to implement. The so-called "endgame," finalized in 2017, is the final iteration of these rules, which serve as a financial cushion to enhance the resilience of big banks against economic stress and safeguard the broader financial system.

However, banks have argued that additional capital is unnecessary and will hurt the economy, aggressively lobbying against the project. The new Fed proposal aims to address these concerns by simplifying the capital rule, potentially with ripple effects on bank lending and trading activities.