Recent/upcoming developments… The Fed’s work to shift the direction of bank capital/liquidity requirements has begun to accelerate, with the release of its proposed changes to stress testing last week and what Vice Chair Bowman said would be finalization of its revisions to the eSLR in the “next few weeks or a month.”  She didn’t specify a precise timeline for proposing Basel III revisions, nor changes to the G-SIB surcharge, though did recently note that the Fed is looking at the latter, which suggests a proposal could come before the broader Basel revisions.  As we’ve previously noted, unnamed sources reportedly said this summer that the Fed is likely to release its proposed Basel revisions in early 2026, which in our view is a reasonable estimate given the lead-time necessary for Bowman and the broader team under President Trump to weigh in.

Our outlook… Signals from President Trump, Secretary Bessent, and Bowman this year have consistently implied that revisions to bank capital/liquidity rules will be accommodating to industry.  The stress test proposal did not address redundancy between the SCB and broader Basel framework, but we expect industry will comment on this and it will be addressed before the stress test process is finalized in March.  Industry is supportive of the Fed’s eSLR proposal despite the fact that it did not fully carve out Treasuries, so we expect it will be finalized in the form it was proposed.   Comments from major banking industry trade associations (e.g., BPI, SIFMA, others) are a good guide to where the Fed is likely to take these initiatives as well as the G-SIB surcharge and Basel more generally.

* Stress tests/SCB… The Fed last week requested comment on the models and scenarios to be used in the 2026 stress testing cycle. While the Fed did not commit to any specific changes to the models and scenarios for the 2026 stress test in the proposal, stakeholders such as BPI and SIFMA are sure to urge the Fed in their comments to pursue changes to the Global Market Shock component and eliminate inclusion of operational risk losses from the stress test.  We will know if those changes have been incorporated into the models and scenarios used for the 2026 stress test when the final scenarios are released next March.

* eSLR… In June 2025, the banking agencies issued a proposal to update the eSLR. The proposal would set the eSLR for both bank holding companies and their depository institution subsidiaries so that it is based on a banking organization’s overall systemic risk. The banking agencies anticipate that the amount of overall capital that banking organizations maintain would generally stay the same as a result of this proposal.  BPI is supportive of the changes being made to the eSLR.

* G-SIB surcharge… In July 2023, the Fed voted unanimously to make changes to the G-SIB capital surcharge. While the proposal would increase U.S. G-SIBs’ risk-based capital requirements by about $13 billion in the aggregate, there is the potential the proposal could be re-proposed in a way that instead reduces aggregate capital requirements.  While Bowman did vote for the July 2023 G-SIB surcharge proposal, she took the opportunity to highlight areas where the proposal could be improved in her statement released alongside the proposal. Specifically, she called for weekly or monthly versus daily measurement of certain systemic indicators used in the calculation.  BPI recommends the G-SIB Method 2 surcharge calculation be adjusted for economic growth, something that Bowman said she supports.  In addition, BPI recommends reverting the weight of the short-term wholesale funding component in the Method 2 surcharge calculation to 20%.  The July 2023 proposal does not incorporate these two recommendations, but it is likely the Fed will incorporate these two recommendations into the new proposal.

* Basel III… The Fed has reportedly circulated a revised plan developed by Vice Chair Bowman to ease proposed capital hikes for major U.S. banks, cutting projected increases to between 3-7% from the 19% outlined in the 2023 Basel III end-game proposal.  The plan would apparently scale back risk assessments tied to trading and wealth management activities and could include an opt-out for midsize lenders.  In comments on the prior Basel proposals, banks called for capital relief on mortgage activity, something that the Fed previously signaled it is likely to accommodate, and which is also consistent with Secretary Bessent’s call to level the regulatory playing field between banks and non-banks.

Watch for these developments… It would be typical for key officials such as Bessent and Bowman to set expectations for major regulatory changes prior to their official release, something that they’ve done at a directional level throughout this year for the various bank capital and liquidity rules.  We would expect to hear more from them in the coming weeks on the direction of their coming proposals and the timing of their release if our assumption about early 2026 being the likely timeline for their release is accurate.