Fed Warns Wall Street Against Aggressive Pushback on Relaxed Capital Rules

Federal Reserve officials have cautioned major U.S. banks against staging further aggressive opposition to newly relaxed capital requirement rules. Vice Chair for Supervision Michelle Bowman has indicated that the central bank does not expect the industry to seek additional relief following a significant victory for banking executives in March.

The Details

In recent meetings with bank executives, Fed officials emphasized that upcoming industry comments, due by mid-June, should remain limited and specific. This guidance follows the Federal Reserve's March 2026 unveiling of relaxed drafts for the 'Basel III' and 'GSIB surcharge' rules. These proposals are estimated to reduce capital levels at large U.S. banks by approximately 4.8% on aggregate.

Specific relief varies by institution size. The proposals would lower aggregate CET1 capital requirements by 4.8% for Category I and II banks, 5.2% for Category III and IV banks, and 7.8% for smaller institutions. Fed staff estimates that the re-proposal package provides roughly $87.7 billion in system-wide CET1 relief.

Despite the broader industry win, JPMorgan Chase remains a notable outlier. During earnings calls the week of April 14, JPMorgan executives noted that their capital levels would actually increase by around 4%, requiring the bank to hold an estimated $20 billion more in capital. Executives described the GSIB surcharge as a 'persistent miscalibration.'

Internal disagreement persists within the Federal Reserve. The board voted 6-1 to advance the proposed rules for public comment, with Governor Michael Barr as the sole dissenter. While the FDIC board voted unanimously to advance the rules, Barr argued that the proposals were 'unnecessary and unwise' and could potentially harm the resilience of the U.S. financial system.

Context

The current regulatory climate marks a sharp departure from the 'Basel III Endgame' proposal of 2023. That original plan envisioned capital hikes of up to 20% for large banks, sparking a fierce and successful lobbying campaign by the banking industry to water down the requirements.

This shift in oversight coincides with a change in leadership at the Fed. Michelle Bowman replaced Michael Barr as the top banking supervisor after the transition to the Trump administration. Barr had been a primary architect of the 2023 proposal and a staunch advocate for tighter capital requirements during the Biden administration.

Critics of the relaxed rules, including Senator Elizabeth Warren, have argued that the proposal 'grants their every wish.' Warren warned that the reduction in capital requirements would lead to larger payouts for executives and shareholders while leaving the banking system more vulnerable to crashes and taxpayer-funded bailouts.

What's Next

The banking industry is now entering the formal 90-day comment period, which concludes in mid-June 2026. While the Fed has urged for limited and specific feedback, some bank executives have already signaled via earnings calls that they intend to seek further changes to the rules.

Observers will be watching whether the Fed maintains its current stance or if pressure from outliers like JPMorgan leads to further calibrations of the GSIB surcharge. The final adoption of these rules will determine the actual capital cushions megabanks must maintain moving forward.