Five Banking Groups Target Overlap in Basel Capital Rules

Five trade groups told federal regulators Thursday that the March Basel capital proposal still piles overlapping charges on certain risks, and they want the agencies to revise the rules before implementation.

The Bank Policy Institute, American Bankers Association, Financial Services Forum, U.S. Chamber of Commerce and Consumer Bankers Association laid out their demands in a comment letter whose contents were released Thursday. The March proposal represents "a significant improvement" over the 2023 version, the groups said. "Some overlapping requirements remain, leading to excessive capital charges for certain risks," they added. "Our recommended changes would further improve risk sensitivity and reduce unnecessary complexity, advancing the proposal's stated goals."

The overlapping-requirements argument is the letter's central mechanism. The stress capital buffer already forces banks to hold capital against operational risk losses that could materialize in a severe downturn. The Basel proposal adds a separate operational risk capital charge on top of that. The groups want regulators to eliminate the double-count. By the same logic, they argue the market risk and credit valuation adjustment frameworks are over-calibrated because the stress buffer already covers some of the same exposures.

A concrete target: the risk weight on mortgage servicing assets. The current proposal assigns a 250% risk weight to MSAs even when the bank has hedged the interest-rate and prepayment exposure. The trade groups want that cut to 100% for hedged positions. A bank like Wells Fargo, which carries billions in mortgage servicing rights, would see a direct capital relief from that change.

The letter also asks the agencies to keep the current definitions of "commitment" and "unconditionally cancelable" – two terms that determine whether a lending facility triggers a capital charge. The groups argue that narrowing those definitions would artificially inflate capital requirements on lines of credit that banks already have the right to cancel.

On timing, the trade groups want the implementation date pushed to Jan. 1, 2028 at the earliest, with the option for banks to adopt the rules earlier if they choose.

The comment period closed Thursday. Regulators now sift through the industry's latest round of demands. The 2023 version of Basel III drew fierce opposition from banks and lawmakers, and the March re-proposal scaled back the most aggressive capital increases. The Federal Deposit Insurance Corporation, Federal Reserve Board and Office of the Comptroller of the Currency said at the time that their changes would "modestly" reduce capital requirements for both large and small banks while keeping capital levels "substantially higher" than before the global financial crisis.

The trade groups' letter is best read as the industry's final push on a rule that already got significantly watered down. The 2023 draft would have forced the eight largest U.S. banks to hold roughly 19% more capital. The March version cut that increase roughly in half. What the groups are asking for now is not a wholesale rewrite of capital standards – it is a series of marginal adjustments at points where the remaining overlap hits specific business lines hardest. The MSA risk-weight change is the most measurable: for banks active in mortgage origination and servicing, that single line item would free up capital in a directly quantifiable way.

A decision on the final rule is not expected before late 2025 or early 2026, giving regulators months to weigh the industry's arguments against the safety-and-soundness case for higher floors.