Federal Reserve Vice Chair for Supervision Michelle Bowman on March 12, 2026, outlined a series of proposed reforms to the U.S. bank capital framework, signaling a significant shift toward lower requirements for both global systemically important banks (G-SIBs) and smaller financial institutions. Speaking at the Cato Institute in Washington, D.C., Bowman detailed a bottom-up recalibration of the Basel III and G-SIB surcharge rules, which she argued have become over-calibrated and disconnected from actual risk.
The proposal aims to modestly decrease the aggregate capital requirements for the nation’s largest lenders. While the Basel III component is expected to result in a small increase for the largest firms—aligning with standards in the United Kingdom—this would be offset by a modest decrease in the G-SIB surcharge. Bowman noted that the surcharge has recently increased in a manner disassociated from risk, and the proposed adjustment would correct for economic growth and excessive requirements related to short-term wholesale funding. In aggregate, the Vice Chair stated these changes would lower large bank capital requirements by a small amount compared to current levels.
For smaller and mid-sized banks, the proposal offers more substantial relief. The Federal Reserve plans to introduce a standardized approach that modifies risk-based capital calculations for most banks, moderately reducing requirements for mortgages, consumer lending, and business credit. A key feature of the reform is the recognition of loan-to-value (LTV) ratios in mortgage capital requirements, where higher-quality, lower-LTV loans would attract lower charges. Additionally, the proposal removes the requirement for banks to deduct mortgage servicing assets (MSAs) from regulatory capital, instead assigning them a 250 percent risk weight. Bowman stated these measures are intended to address the 15-year migration of mortgage activity to the nonbank sector.
The reforms also address operational risk and credit valuation adjustments (CVA). The proposal would allow banks to calculate operational risk using a standard calculation that accounts for fee-based activities, such as credit card lending, on a net basis rather than independently. The new CVA requirement would target banks with significant trading activity and material derivative portfolios, focusing on bilateral transactions among large firms to avoid increasing costs for commercial end users like farmers and manufacturers.
Bowman indicated that the Board of Governors expects to vote on the formal proposal next week, which would then be subject to a 90-day public comment period. The Vice Chair, who was appointed to her role last year by President Donald Trump, emphasized that the goal is to return capital levels toward 2019 standards while maintaining a robust framework for safety and soundness. She concluded that excessive requirements impair the banking system’s ability to provide credit, and the proposed sensible recalibration is necessary to support long-term economic growth and job creation.