US implements risk-sensitive bank capital reforms with focus on practicality and international standards

In March 2026, U.S. banking regulators put forward a package of capital reforms that would reshape how banks measure risk and hold equity against it, with the most significant changes aimed at the country’s largest and most active lenders. The Office of the Comptroller of the Currency, the Federal Reserve and the Federal Deposit Insurance Corporation said the plans were designed to make capital rules more risk-sensitive, easier to administer and closer to international Basel standards, while also trimming some of the U.S.-specific features that industry groups have long criticised as overly punitive.

The proposals came after the agencies abandoned an earlier 2023 effort that had sought much larger capital increases across a broad swathe of the sector. This time, the agencies framed the package as a recalibration rather than a wholesale tightening. According to the OCC, the changes should support lending capacity, and Comptroller Jonathan V. Gould said the goal was to reset risk tolerance while preserving the banking system’s ability to absorb shocks. The OCC estimated that the banks it supervises would see an aggregate 6.9% reduction in minimum binding capital requirements under the revised standardised approach, while its very largest banks would see a 3.4% drop under the expanded risk-based approach.

At the centre of the plan is a new framework for Category I and II organisations, including the global systemically important banks. Instead of calculating risk-based capital under both the current standardised and advanced approaches and then applying whichever produces the higher requirement, those firms would move to a single consolidated regime called the expanded risk-based approach. Banks outside the largest category would remain on a revised standardised framework, with an option for some firms to opt in to the new system if it better matches their business model and risk systems.

The agencies said the new approach would unify the treatment of credit, equity, operational and market risk, drawing on the current standardised approach but refining it where they believed more granularity was justified. They estimated that, at the holding-company level, the expanded framework would raise common equity tier 1 requirements slightly for Category I and II firms, while reducing requirements at their insured depository subsidiaries. Taken together with a separate proposal on GSIB surcharges and earlier stress-testing changes, the agencies said the package would produce a net decline in capital requirements for the biggest holding companies.

Much of the attention is likely to focus on the treatment of mortgages and other real-estate exposures. The agencies are proposing to scrap some of the harsher elements of current U.S. rules, including the automatic deduction and flat 250% treatment that now apply to certain mortgage servicing assets. Instead, these assets would keep a 250% risk weight, but the punitive deduction threshold would be removed. For residential mortgages, the new framework would take account of loan-to-value ratios and whether repayment depends on property cash flows, such as rental income. That means lower-risk owner-occupied loans with stronger equity cushions could carry lighter capital charges, while loans tied to property cash flows would face higher weights.

Commercial real estate would also see a more differentiated treatment. Under the revised standardised approach, most commercial property loans would face a 95% risk weight, down from 100%, though high-volatility commercial real estate would remain at 150%. The agencies said they were trying to better reflect actual risk while reducing unnecessary complexity and the competitive disadvantages they believe current rules create for banks relative to non-bank lenders and servicers.

The capital treatment of off-balance-sheet commitments would also change. The proposals would simplify credit conversion factors for certain unused commitments, set a uniform 40% factor for non-cancellable commitments and, under the expanded framework, apply a 10% factor to unused portions of commitments that can be cancelled unconditionally. The agencies would also use the largest drawn amount over the previous 24 months as a proxy for some revolving exposures without preset limits.

Another notable shift would be the treatment of collateral. The proposals would make it easier for banks to recognise the risk-reducing value of financial collateral even where U.S. insolvency law’s automatic stay could otherwise complicate enforcement. They would also relax restrictions involving maturity and currency mismatches, while introducing a new form of credit protection based on prepaid arrangements, such as fully funded credit-linked notes. Regulators said these changes should make it easier for banks to obtain capital relief from genuinely protective structures without relying on technical distinctions that have limited the usefulness of collateral under current rules.

The plan also overhauls operational risk for the biggest firms. The new framework would eliminate internal models for that purpose and replace them with a standardised measure tied to a bank’s business volume. Regulators said that approach better captures the scale and complexity of a firm’s activities. They also proposed a 70% reduction factor for certain fee-based and non-lending activities, after finding those lines of business had historically produced lower operational losses. Even so, they left open the question of whether to incorporate an internal loss multiplier, which the industry had criticised in the earlier proposal.

For trading firms, the market risk regime would be broadened and tightened in some respects. Category I and II organisations, along with other banks with significant trading books, would face a revised standardised method and, in some cases, an internal models approach at the trading-desk level, subject to supervisory approval and testing requirements.

The Federal Reserve’s separate GSIB surcharge proposal would alter how systemic-risk buffers are calculated for the largest U.S. banks. The surcharge would still be based on the higher of two methods, but the Fed wants to adjust the coefficients used in the second method, reduce the influence of the short-term wholesale funding score and tie future updates more closely to nominal GDP. It would also shift some indicator reporting away from year-end snapshots toward averages over a month or quarter, a move intended to better reflect actual risk and reduce incentives for window dressing.

Taken together, the March 2026 proposals represent a notable change in tone from the previous round of capital rulemaking. The agencies are still seeking to preserve resilience, but the new package suggests a greater emphasis on practicality, international alignment and lending capacity than on across-the-board capital increases.