Fed Proposes Cutting Major Bank Capital Rules by 4.8%–7.8%
The Federal Reserve’s proposal cuts capital requirements for the largest US banks by 4.8%, mid-tier banks by 5.2% and smaller banks by 7.8%, while retaining $800 billion in excess buffers and capital levels twice those pre-2008. The changes simplify calculations, freeing billions for lending, buybacks and dividends.
1. Proposal Details
The Federal Reserve unveiled changes to post-2008 Basel III capital standards, reducing risk-based capital cushions by 4.8% for the largest banks, 5.2% for mid-tier banks and 7.8% for smaller institutions. The plan consolidates multiple calculations into a single requirement and retains stress-test frameworks and surcharges for the biggest firms.
2. Expected Bank Impacts
By lowering capital thresholds, the proposal could unlock billions in cash for expanded lending, share buybacks and dividend payments. Despite the reductions, the largest US banks would still hold roughly $800 billion in excess capital, with aggregate buffers twice the levels held before the 2008 financial crisis.
3. Dissent and Implementation
Vice Chair Michelle Bowman argues the recalibration addresses unintended consequences of post-crisis rules and channels more lending through regulated banks instead of non-bank lenders. Former supervision head Michael Barr opposes the plan, warning it could weaken bank resilience; the proposal now enters a public comment period before any final rule.