Client Alert
On March 19, 2026, the three federal banking agencies jointly issued two separate “notices of proposed rulemaking” (each, an NPR) proposing (1) a revised “expanded risk-based” approach (ERBA) to replace the ERBA proposed in 2023 (ERBA NPR) and (2) amendments to the existing “standardized approach” (SA) in the US Basel III rule (SA NPR) to reduce risk weights for some exposures, eliminate certain capital deductions, and make other changes to the SA. The ERBA NPR is available here, and the SA NPR here.
Separately, the Federal Reserve issued an NPR (G-SIB NPR) that proposes to revise the capital surcharge computations for G-SIB bank holding companies (BHCs) in replacement of a similar 2023 proposal. The G-SIB NPR is available here.
The ERBA NPR would replace the 2023 proposal for an enhanced risk-based approach that we described in our December 5, 2023, Client Alert titled “Questions and Answers About the Basel III Endgame Notice of Proposed Rulemaking.”
The NPRs
Like the 2023 proposal, the ERBA NPR proposes (1) a revised “enhanced risk-based” approach capital standard for computing risk weighted assets (RWAs) that would replace the existing “advanced approaches” used by Category I and II bank holding companies (each a BHC) and their bank subsidiaries and (2) a revised market risk standard for BHCs and banks subject to the market risk rule for computing market risk RWAs.
Importantly, the agencies propose that all BHCs (and their bank subsidiaries) using the ERBA would no longer be required to compute separately their SA RWAs and use the higher of the two RWA computations for determining their compliance with capital requirements. The agencies propose that the ERBA would be mandatory only for Category I and II BHCs and their bank subsidiaries. The 2023 proposal would have also applied to Category III and IV BHCs and their bank subsidiaries.
Category III and IV BHCs and all other BHCs could elect to adopt the ERBA in lieu of continuing to compute their capital rule compliance under the SA. It is not clear why the agencies believe that, under the Collins Amendment, they can permit a BHC or bank to determine their capital compliance solely under the ERBA. Currently, the agencies identify the SA as containing the “generally applicable risk-based capital requirements for all” BHCs and banks under the Collins Amendment, which establishes a “floor” for RWA computations.1
The ERBA NPR proposes significantly lower risk weights for many exposures compared to the 2023 ERBA proposal. We will issue a separate Client Alert detailing the risk weights and credit conversion factors proposed in the ERBA NPR and comparing those with the 2023 proposal that we detailed in our December 15, 2023, Client Alert titled “Risk Weights and Credit Conversion Factors in the Proposed New Subpart E “Expanded Risk-Based” (ERB) Approach Compared to the Standardized Approach in the US Basel III Rule.”
The SA NPR proposes to amend the SA to reduce risk weights for traditional lending activities (particularly corporate and residential real estate exposures), eliminate the capital deduction for mortgage servicing assets, replace that with a 250% risk weight for all such assets, and make other changes likely to reduce RWA computations.
Although, unlike in the 2023 proposal, Category III and IV BHCs would be permitted to use the proposed revised SA instead of the ERBA, those BHCs and their bank subsidiaries would need to include “accumulated other comprehensive income” (AOCI) in their common equity tier 1 capital computations, as under the 2023 proposal.
We will issue a separate Client Alert detailing the risk weights and other provisions proposed in the SA NPR.
The G-SIB NPR proposes “improved” computations of G-SIB capital surcharges that the Federal Reserve states would lead to modestly higher buffer computations than currently, but that would be significantly less than those that would have resulted from the 2023 proposal.
On its website posting of the NPRs, the Federal Reserve also posted a staff memo summarizing the three NPRs and a Fact Sheet that provided a shorter summary of the proposals
- The Collins Amendment is Section 171 of the Dodd-Frank Act and is codified at 12 U.S.C. Section 5371, which, in part, states: The minimum risk-based capital requirements established under this paragraph shall not be less than the generally applicable risk-based capital requirements, which shall serve as a floor for any capital requirements that the agency may require…
Section 217.30 of the Federal Reserve’s Regulation Q capital requirements states that the SA (contained in Subpart D of 12 CFR Section 217) “sets forth methodologies for determining risk-weighted assets for purposes of the generally applicable risk-based capital requirements for all Board-regulated institutions.” The SA NPR does not propose to amend or eliminate Section 217.30.
In his statement explaining his objections to the March 19, 2026, NPRs, Federal Reserve Board Governor Michael Barr stated that retaining the SA floor would “ensures compliance with the US Collins Amendment,” which suggests he believes the proposal at least might comply with the Collins Amendment. Barr’s full statement is available here https://www.federalreserve.gov/newsevents/pressreleases/barr-statement-20260319.htm
