The Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) on Thursday unveiled a substantially revised Basel III Endgame proposal, replacing the 2023 framework that drew broad industry opposition. (WSJ | Fed Board Memo, March 19)

State of Play

• The revised proposal would reduce capital requirements for the largest U.S. banks by 2.4% overall. (PoliticoPro, March 19)

• The package would also replace the dual-track capital framework for the largest banks with a single approach, revise the G-SIB surcharge, and lower risk weights for mortgages and mortgage servicing assets. (ABA Banking Journal, March 19)

• Regulators said the changes are intended to align capital with risk better, preserve safety and soundness, and support lending and other financial intermediation activities across economic conditions. (Fed Board Memo, March 19)

• The interagency proposal would raise capital requirements by an estimated 1.4% under the revised Basel framework, but that increase would be more than offset by a 3.8% reduction in the G-SIB surcharge for the largest U.S. banks, for a net 2.4% decline overall.

• Midsize banks would be allowed to decrease their capital buffers by an average of 5.2%, including stress-test revisions, and smaller banks by 7.8%. (WSJ, March 19 | AAF, March 20)

• Regulators said the revised framework would also better support traditional lending and reduce incentives for activity to migrate outside the regulated banking system, including through lower risk weights for mortgages and mortgage servicing assets. (OCC News Release, Mar. 19)

Why It Matters

• For commercial real estate, the reset could ease regulatory pressure that threatened to constrain credit for real estate lending, mortgage activity, and other capital-intensive transactions.

• “Lowering the amount of capital held by banks would give them more money to deploy into the economy, potentially boosting growth," said Federal Reserve Vice Chair for Supervision Michelle Bowman, who led the central bank’s efforts to craft the proposal. (Fed Press Release, March 19)

• House Financial Services Committee Chairman French Hill (R-AR) and Subcommittee on Financial Institutions Chairman Andy Barr (R-KY) said the agencies had moved toward a “more balanced Basel III framework,” adding that right-sized capital standards are critical to preserving lending capacity, competitiveness, and access to credit. (Reps. Hill, Barr Statement, March 19)

Roundtable Advocacy

• The Real Estate Roundtable (RER) has consistently opposed the original Basel III proposal, citing its potential negative impact on available credit capacity for commercial real estate transactions, market liquidity, and economic growth. (Roundtable Weekly, Nov. 2023; Jan. 2024; Mar. 2024)

• In December, RER and a coalition of leading business trade organizations urged prudential regulators to examine and modernize large bank capital requirements so they continue supporting consumers, businesses, and the broader U.S. economy. (Letter, Dec. 2) (Roundtable Weekly, Dec. 5)

• The coalition letter underscored the negative economic impacts of inappropriately calibrated capital rules, highlighted risks to American competitiveness, and commended ongoing agency efforts to improve the framework. (Roundtable Weekly, Feb. 20)

The agencies will accept comments on the proposed rules until June 18, and RER's Real Estate Capital Policy Advisory Committee (RECPAC) looks forward to members' input as it prepares comments on the proposal.