Wall Street's bank capital victory in sight but hurdles remain

• The revised Basel rules eliminate several measures banks opposed, including dual compliance requirements that penalized trading giants and strict operational risk rules for fee-based businesses like credit cards
• Banks will have 90 days to provide feedback on the proposals, with finalization requiring approval from the Fed's bipartisan board, Trump's Fed Chair nominee Kevin Warsh, and White House Budget Office review
• Major banks including JPMorgan, Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley could benefit from tweaks to the GSIB surcharge, though industry officials warn of sizeable differences in how specific firms are affected

Wall Street Banks Set for Capital Rule Victory, But Challenges Remain

Federal regulators will release softened draft capital rules on Thursday that will slightly reduce big bank capital requirements, marking a significant reversal from the 2023 proposals that would have imposed double-digit capital hikes on over 30 banks with more than $100 billion in assets.

Key Developments:

Fed Vice Chair for Supervision Michelle Bowman confirmed the revised "Basel" and "GSIB surcharge" proposals represent a substantial industry win. The original July 2023 draft by former Vice Chair Michael Barr would have increased capital requirements by as much as 20% for some major banks.

The new draft eliminates several controversial measures, including the requirement to comply with the stricter of two risk-calculation methods and eases operational risk requirements on fee-based businesses like credit cards. However, banks await clarity on using internal models for market risk assessment and capital requirements for non-publicly listed securities.

Affected Institutions:

The GSIB surcharge adjustments could benefit the eight riskiest U.S. global banks, including JPMorgan, Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley, though benefits may vary significantly among firms.

Timeline and Obstacles:

The industry has 90 days to provide feedback on what analysts expect to be hundreds or potentially thousands of pages of technical documentation. Truist Securities estimates finalization won't occur until early 2027, despite regulators' commitment to move quickly.

Political hurdles include potential Democratic dissent on the Fed's bipartisan board, approval requirements from Kevin Warsh (Trump's Fed Chair nominee), and White House Budget Office review under a 2025 executive order. Uneven benefits across banks may trigger further industry lobbying for adjustments.