The second week of March 2026 arrived with a major victory for Wall Street, as the Donald Trump administration unveiled the latest capital rules in a softened form. Under the latest scheme of things, American banks will see capital requirements declining by 4.8%, freeing up billions of dollars for lending, dividends and share buybacks. It is a stunning victory for the industry, which had been facing double-digit hikes under a previous plan laid out in 2023.
The wide-ranging proposal alters the method banks in the world’s largest economy use to determine how much they set aside to cover losses, which should be a win for Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citibank and other lenders that have long sought to reform US capital rules, although some analysts cautioned that some would benefit more than others.
The Federal Reserve noted that capital levels at larger regional banks, such as PNC and Truist, would decline by 5.2%, while banks with less than $100 billion in assets would see a 7.8% drop.
The Federal Reserve officials say the changes, which include a rewrite of the controversial “Basel III” draft and adjustments to the “GSIB surcharge,” will strengthen and simplify the capital framework while still allowing US banks “to remain safe, sound, and able to serve the US economy.”
Critics, on the other hand, argue that the changes will weaken financial system safeguards at a time when geopolitical and private credit risks are increasing, with some large US banks restricting lending and funds limiting withdrawals.
Credit negative
The Fed, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency are expected to begin soliciting industry feedback, starting another potentially frantic round of industry lobbying as banks learn how they will compare to their peers. Industry groups estimate that the eight most interconnected global US banks alone have about $1 trillion in combined capital, which would mean they could save as much as $50 billion.
The changes are part of a years-long Wall Street campaign to ease rules put in place in the wake of the 2008 financial crisis that banks say are excessive and are crippling lending and the economy. Fed Vice Chair for Supervision Michelle Bowman, who was appointed by President Donald Trump, said at a Fed board meeting convened to vote on the proposals that the changes would better calibrate requirements in line with risks and that capital would remain robust.
Recently, analysts at Moody’s wrote that the falling capital would be credit negative for lenders, and that, given the differences in business models and mix of balance sheets among US banks, the impact would likely vary significantly by bank.
Unprecedented industry fight
The last element of international capital standards enacted in the wake of the crisis, which is how banks evaluate and allocate capital to credit, market and operational risks, is called the “Basel Endgame” and regulators have been struggling for years to put it in place.
Michael Barr, the Democratic predecessor to Michelle Bowman, had attempted to move a plan forward that would have increased capital for some banks by as much as 20%, but lenders mounted an unprecedented lobbying effort to water down the rule, persuading many lawmakers and dividing the regulators, pulling the project into the Trump administration, which sided with the industry.
The Federal Reserve also recommended adjustments to the so-called GSIB surcharge for Global Systemically Important Banks that it will charge on those eight US global lenders by updating economic inputs and changing how it calculates short-term funding risk.
Michael Barr opposed the changes, calling them “unnecessary and unwise,” and estimated the GSIBs would save approximately $60 billion in capital. Industry executives welcomed the news, but noted that the full impact of the combined changes would require more time to understand, given their complexity.
“First impressions are that this is a significant improvement on the previous proposal. But the devil is in the detail,” said Scott O’Malia, CEO of the International Swaps and Derivatives Association, while interacting with Reuters.
The New York-based trade body lobbied for changes to Michael Barr’s draft.
For years after the 2008 financial crisis, the approach was pretty simple: play it safe. Banks were asked to hold more capital, build thicker cushions, and prepare for worst-case scenarios. That did make the system stronger, no doubt. However, banks continued to argue that excessive caution was beginning to hinder progress, particularly regarding lending and supporting economic activity.
Now, with these proposed changes, it seems regulators are attempting to address that pressure. By easing some of the capital requirements, they’re basically giving banks a bit more breathing room. In theory, that should free up money that can go into loans, infrastructure projects, or even support businesses that are still struggling to access credit. If that actually plays out, it could give a small push to parts of the economy that need it.
That said, not everyone is comfortable with the timing. There’s already a lot going on globally, geopolitical tensions, volatility on the interest rates front, and the steady rise of private credit markets outside the traditional banking system. In that kind of environment, even a small relaxation of rules can make people nervous. Analysts worry that risks don’t always show up immediately. They tend to build quietly in the background and only become obvious when something goes wrong.
At the same time, you have to wonder who really comes out ahead. The bigger banks will probably find it easier to make use of the extra capital, they just have more options and room to move. Smaller or regional banks don’t really have the same room to adjust, especially if they depend on a handful of sectors or local customers. So even if the rule is the same for everyone, the benefits won’t feel the same across the board.
Over time, that could quietly widen the gap between the biggest banks and the rest. Maybe that’s not the intention, but it’s something worth paying attention to. When a few big players keep getting stronger, questions around competition and long-term stability naturally come up.
Investors, meanwhile, seem split. Some like the idea since lower capital rules can boost returns and allow banks to give more back to shareholders, which is always appealing. On the other side, there’s a lingering concern about whether this comes at the cost of higher risk. Not every investor is willing to trade stability for improved returns, especially given how unpredictable the current environment feels.
The next phase, where regulators open this up for feedback, will probably be just as important as the proposal itself. Banks will carefully review the details, understand their implications, and advocate for necessary changes. That process can get quite intense, as different groups within the industry try to shape the outcome in their favour. Regulators will have to sort through all of that while still keeping the bigger objective in mind.
Another layer to this is the global angle. The idea behind the Basel framework was simple, keep rules consistent so banks everywhere compete on equal terms. But in practice, it’s never been perfectly aligned. If the world’s largest economy goes in a different direction, it could create some friction, especially for banks already juggling rules across countries.
What matters is how all this holds up when things get tough. It’s easy for the system to look solid when everything is calm. The real test comes during stress, when markets are under pressure, liquidity tightens, and confidence drops. That’s when the strength (or weakness) of these frameworks becomes clear.
So, in a way, this is part of a larger cycle. Regulation tightens after a crisis, then gradually loosens as conditions improve and pressure builds from the industry. We’re seeing that cycle play out again. Whether this adjustment turns out to be sensible or short-sighted will depend on how well it balances risk with the need to keep the financial system moving. For now, it’s very much a wait-and-watch situation.