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Abstract: 

On July 27, 2023, the Federal banking agencies approved notices of proposed rulemaking to implement the remaining Basel III framework and to revise the methodology for calculating the G-SIB surcharge. The capital proposal will significantly increase required capital levels for covered banks and may have other less obvious and potentially unintentional consequences for the US banking and financial system. It also eliminates any tailoring of the capital rules for banks with $100 billion or more in assets, almost entirely collapsing current Federal Reserve categories II, III, and IV into a single category, at least for capital purposes. In addition to the impact on regional banks, the proposals will drive significant capital increases for foreign banking organizations with significant US presence, US G-SIBs, and capital markets activities. The agencies’ failure to articulate a credible factual rationale for these far-reaching reforms, including their deviations from Basel and past publicly stated goals, leaves them vulnerable to policy and legal challenges.

Keywords: Basel III “Capital Proposal”; Credit Valuation Adjustment (“CVA”); Risk-Weighted Assets; G-SIB Capital Requirements

Affiliations:  1: Jones Day.