Regulatory Capital: Regulatory Capital and Standardized Approach for Risk-Weighted Assets

The Committee on Capital Markets Regulation, an independent 501(c)(3) research organization, expresses broad support for the proposed Basel III "finalization" reforms. They argue that the proposals improve the alignment of capital requirements with actual risks and will enhance the ability of banks to support the real economy.

The Securities Industry and Financial Markets Association Asset Management Group (SIFMA AMG) opposes several components of the proposed Basel III capital standards. They argue that the proposal's CVA capital requirements, FRTB DRC treatment of equity derivatives, and GSIB surcharge treatment of ETFs will increase costs, reduce liquidity, and harm retail and institutional investors.

The CFA Institute Systemic Risk Council (SRC) opposes the proposed changes, arguing that they will reduce the capital cushion of the banking system and exacerbate systemic risk. They specifically criticize the reduction in GSIB surcharges, the elimination of the standardized approach floor, and the potential for increased exposure to the opaque nonbank financial intermediary (NBFI) sector.

Public Citizen opposes the proposed rules, arguing that they reduce solvency standards by approximately 6 percent and allow large banks to "model-game" their balance sheets to artificially lower capital requirements. The organization contends that these changes increase systemic risk, favor executive compensation over financial stability, and lack empirical evidence to justify the reduction in safety standards.

The Charleston Chamber of Commerce supports the proposal, arguing that it will simplify the capital requirements framework and increase access to credit for small businesses. They believe the recalibration of risk measures will lower credit costs and improve the international competitiveness of American businesses.

United States Senators Elizabeth Warren, Jack Reed, Chris Van Hollen, Richard Durbin, and Richard Blumenthal are requesting that the agencies withdraw the three bank capital proposals. They argue that the proposals, particularly the "Basel III Endgame," would reduce loss-absorbing capital requirements for large banks, increase systemic risk, and potentially violate the Dodd-Frank Act.

Senator Jared Carpenter of Kentucky supports the proposal, arguing that it will lower borrowing costs and expand credit access for rural businesses and families by streamlining regulatory frameworks. He also suggests that the agencies should go further by reducing GSIB surcharges to unlock even more lending capacity.

Hilary Allen, a law professor at American University Washington College of Law, opposes the proposed rulemakings because they would reduce the amount of capital banks are required to fund their investments. She argues that the current financial system is vulnerable to risks from private credit, AI bubbles, and crypto markets, and therefore capital requirements should be strengthened rather than weakened.

A group of academics from various universities (including NYU Stern, Harvard, and Columbia) argues that the proposed changes would weaken the U.S. banking system's resilience by materially lowering capital requirements for systemically important banks. They contend that the agencies lack sufficient evidence to justify these cuts, misapply the nonbank migration rationale, and create dangerous deviations from international Basel III standards.

United States Senators Elizabeth Warren, Jack Reed, Chris Van Hollen, and Tina Smith are requesting a 180-day extension of the comment period for the proposed capital rules. They argue that the current 90-day window is insufficient to evaluate the complex proposals, which they claim could reduce loss-absorbing capital at big banks and increase the risk of financial instability.