The Federal Reserve overturns the final rules of Basel III, easing regulatory burden on large U.S. banks.

The Federal Reserve is restarting the process of formulating new risk capital rules, which will reduce the burden on large banks in the United States compared to the Biden era plan. Sources familiar with the matter said that Vice Chairman of Supervision Michael Barr is leading the design of the new proposal, aimed at simplifying the calculation of bank capital. Sources revealed that regulatory agencies are expected to abandon the original proposal of the 1087-page "Basel III Final Rule" released in 2023, with the goal of introducing the new rules by the earliest in the first quarter of 2026. The final rule of "Basel III" is intended to clarify how much capital banks need to reserve to withstand an economic downturn. The initial proposal by Barr, former Vice Chairman of Supervision at the Federal Reserve, would have increased capital requirements for large U.S. banks by 19%, but was later revised down to 9%. With Trump elected as president in November 2024, the final implementation process of the rule was stalled. The Federal Reserve will work with other major U.S. banking regulatory agencies such as the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) to formulate the new rules. The capital increase expected from the yet-to-be-drafted new proposal is expected to be lower than the revised 9% level. Prior to the start of this work, bankers and lobbyists gathered in Washington for the Federal Reserve-hosted "Large Bank Capital Framework Comprehensive Review Conference," aimed at providing industry feedback before regulators begin the new rulemaking process. Barr has sharply criticized the original proposal of the "Basel III Final Rule," arguing that it has "excessive calibration" of risks, even more stringent than the Basel standards set by the Bank for International Settlements.