Federal agencies propose modernized capital framework for banking organizations
The Federal Reserve, FDIC, and OCC have issued three proposals to modernize the regulatory capital framework for banking organizations of all sizes. Stakeholders are encouraged to submit comments by June 18, 2026.
Expanded risk-based approach for large banks
The first proposal streamlines capital requirements for Category I and II banking organizations, mandating a single set of risk-based capital ratios under an "expanded risk-based approach.
" This framework integrates requirements for credit risk, operational risk, market risk, and credit valuation adjustment (CVA) risk.
The standardized and advanced approaches would be removed for Category I and II institutions.
The market risk capital framework will apply to large depository institution holding companies and other banking organizations with significant trading activities, including a new risk-sensitive framework for CVA risk for derivative exposures.
Mortgage servicing assets (MSAs) will no longer be deducted from common equity tier 1 capital; instead, they will be subject to a 250 percent risk weight.
A standardized operational risk capital requirement is also introduced, calibrated to business volume.
Calibrating risk weights across the board
The second proposal revises the standardized approach, enhancing risk sensitivity for lending activities, including a new loan-to-value based approach for residential mortgages.
Risk weights for corporate exposures are reduced from 100 percent to 95 percent, and for other unassigned assets from 100 percent to 90 percent.
Category III and IV banking organizations (with $100 billion to $700 billion in assets) will be required to recognize most elements of accumulated other comprehensive income (AOCI) in regulatory capital, with a five-year transition period.
The proposal also amends certain dollar-based regulatory thresholds to reflect inflation and ensure their intended application over time.
GSIB surcharge gets a sharper edge
The proposed GSIB surcharge adjustments represent a significant step towards more granular and dynamic systemic risk measurement.
Moving to 10 basis point increments and annual averages reduces cliff effects and incentivizes continuous risk management.
These refinements are crucial for aligning capital buffers with the true systemic footprint of the largest institutions.