Streamlined Bank Capital Framework Modernization

March 31, 2026

Federal Agencies Propose Streamlined, More Risk Sensitive Framework to Modernize Bank Capital Framework

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On March 19, the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) (collectively, the agencies) jointly issued three proposed rules to “modernize” the regulatory capital framework for banking organizations of all sizes. The agencies aim to simplify how capital is calculated, better align requirements with underlying risk, and maintain the strength of the banking system, even as they project a modest decline in aggregate capital requirements compared to today’s levels. Comments on all three proposals are due by June 18, 2026.

Background

In the years following the global financial crisis, U.S. regulators significantly raised both the quantity and quality of required loss‑absorbing capital and introduced stress testing and other post‑crisis reforms. After more than a decade of experience, however, the agencies concluded that elements of the capital framework had become overly complex, duplicative, or poorly calibrated, particularly given the variety of bank business models. The March 19 package reflects a comprehensive, “bottom‑up” review intended to ensure that individual requirements are appropriate, risk‑sensitive, and not producing unintended consequences.

The proposals operate on three fronts. For the largest, most internationally active banks (Category I and II), the agencies would replace overlapping regimes with a single “expanded risk‑based approach” that integrates credit, market, operational, and credit valuation adjustment (CVA) risk. For most other banks, the agencies would refine the standardized approach by recalibrating risk weights for core lending categories, e.g. residential mortgages, corporate exposures, and mortgage servicing assets, while preserving overall simplicity. Separately, the Federal Reserve would update the framework for setting the GSIB surcharge so that the additional capital required of the largest, most complex firms better reflects their systemic footprint and funding profile.

Key Points

The first proposal would streamline risk‑based capital requirements for Category I and II organizations by eliminating the need to calculate both standardized and advanced approaches and instead requiring a single set of risk‑based capital ratios under an expanded approach. That framework would explicitly incorporate standardized operational risk capital, updated market risk rules that rely on expected shortfall and more granular liquidity horizons, and a more risk‑sensitive CVA regime targeted at firms with significant derivatives and trading activity. Other banks could opt into this approach, and the market risk framework would apply only to institutions with material trading operations.

The second proposal would adjust the standardized approach for banks outside the very largest tier by making risk weights more sensitive to factors such as loan‑to‑value ratios for residential mortgages and credit quality indicators for retail and corporate exposures. Among the most notable changes, mortgage origination and servicing would face a more risk‑appropriate capital treatment, mortgage servicing assets would no longer be deducted from CET1 but instead uniformly risk‑weighted at 250%, and standardized risk weights for corporate and “other” exposures would decline modestly from 100% to 95% and 90%, respectively. Category III and IV institutions (roughly $100–$700 billion in assets) would also be required, subject to a five‑year transition, to recognize most AOCI in regulatory capital, bringing interest‑rate and valuation effects more directly into capital ratios.

The third proposal would refine the GSIB surcharge framework by updating coefficients used in the “method 2” calculation, introducing an automatic adjustment mechanism for economic growth and inflation, and changing how key systemic indicators are measured and weighted. Short‑term wholesale funding would be recalibrated, with the removal of risk‑weighted assets from its denominator and a reset to a 20% weight, and certain indicators would be computed as averages over the year rather than on a single year‑end date to reduce incentives for “window dressing.” Surcharges would also be assigned in finer 10‑basis‑point increments, making them more responsive to incremental changes in a firm’s risk profile. Across the three proposals, the agencies anticipate modest capital relief for large banks and somewhat greater relief for smaller banks, while keeping systemwide capital well above pre‑crisis levels.

Our Take

These proposals are best viewed as a recalibration and simplification of the post‑crisis regime, not a rollback. For the largest banks, a single expanded risk‑based framework should reduce operational complexity and better integrate trading, derivatives, and operational risk into capital planning, even as the market risk and CVA changes keep pressure on tail‑risk. For regional and community banks, the more risk‑sensitive mortgage and corporate risk weights, uniform MSA treatment, and modest reductions in standardized weights could ease some capital‑related headwinds to traditional lending and servicing.

At the same time, the proposed AOCI recognition for Category III and IV firms and the refinements to the GSIB surcharge framework will make capital levels more sensitive to interest‑rate risk, funding structures, and systemic footprint. Banking organizations should not assume a net “win” without conducting institution‑specific impact analyses; the effects will vary materially by balance sheet structure, business mix, and interest‑rate positioning.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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Troutman Pepper Locke
2026

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