US Bank Capital Proposal Revised; European Trade Groups Urge EU Adjustments

By Aiden Reiter, Fiona Maxwell, Kathryn Carlson

*March 23, 2026*

U.S. banking regulators on March 19, 2026, proposed revisions to capital requirements for large banks, scaling back elements from a stricter 2023 draft that did not advance. The changes include adjustments to risk-weighting for certain assets and modifications to the output floor for market risk, while retaining core Basel III components such as an expanded risk-based approach.

European banking trade groups have cited the U.S. revisions in calls for the European Union to accelerate its review of capital rules. The revisions represent a shift from the 2023 proposal, which regulators estimated would have increased aggregate capital requirements by about 16% for large banks, according to prior Federal Reserve analysis. The new outline aims to support lending without fully aligning with international Basel standards.

European trade groups had raised competitiveness concerns prior to the U.S. proposal. In July 2025, the European Banking Federation (EBF) released its "Simply Competitive" report, advocating simplification and reduction of overlapping EU capital requirements to boost lending capacity. A December 5, 2025, EBF analysis found that 90% of major European banks' retained earnings from 2021 to 2024 had been absorbed by supervisory capital add-ons exceeding Basel baselines.

“The U.S. proposal appears to mark a clear shift toward easing capital constraints to support lending and growth, while Europe seems to continue moving in a different direction,” said Sébastien de Brouwer, deputy CEO of the EBF. He added that the U.S. changes make it “more urgent than ever to review the EU framework to preserve competitiveness and financing capacity of European banks.”

Over recent months, European regulators have examined the competitiveness of the EU banking sector amid slower growth in major European economies compared to the U.S. EU heads of government stated Thursday — prior to the U.S. proposal's release — that the European Commission should “propose targeted amendments to the prudential framework in order to enhance the capacity of the banking sector to finance the European economy.”

The Commission is preparing a report on banking sector competitiveness, expected after summer 2026, which may lead to legislative proposals on capital requirements or other areas. The European Central Bank (ECB) has recommended simplifying EU rules, including lighter Basel application for small banks and merging capital buffers. These ECB suggestions are narrower than the U.S. revisions.

The U.S. proposal modifies aspects of the Basel III framework, agreed in 2017 by global regulators to address financial crisis risks. It adjusts the output floor — a minimum capital threshold for banks' internal risk models, particularly trading activities — by adopting a new risk-weighting method that eliminates the floor for market risk.

“This definitely goes against not just the ethos but the intent, spirit and goal of Basel III,” said Dennis Kelleher, CEO of Better Markets, a group advocating stronger financial regulations. He predicted the changes “will inevitably ignite another global race to the regulatory bottom.”

Federal Reserve board member Michael Barr stated Thursday that removing the output floor for market risk “will encourage other jurisdictions to do the same, undermining a key reform and cornerstone of the Basel III agreement.”

During 2017 Basel negotiations, U.S. officials supported a stricter output floor. Major European banks opposed it, arguing it would raise their capital needs above U.S. levels due to differences in trading portfolios, potentially reducing lending. The final floor was set lower than the U.S. position.

European regulators recently delayed implementation of the Fundamental Review of the Trading Book (FRTB), which covers market risk capital rules. “Removing the output floor for market risk is a divergence from international standards, and we will carefully assess the impact on internationally active banks, in particular, with respect to the ongoing discussions on EU FRTB implementation and banking competitiveness in Europe,” said Caroline Liesegang, head of prudential regulation and research at the Association for Financial Markets in Europe (AFME), which represents large banks.

Historically, U.S. regulators have implemented rules exceeding Basel minimums — known as "gold-plating" — for large banks, reflecting the U.S.'s role in global finance. In 2023, such a proposal failed to gain approval.

U.S. regulators stated Thursday that international standards should not hinder domestic needs. “We should not seek to punish U.S. consumers and businesses by imposing higher costs of credit, or forcing credit availability outside of the banking system, particularly if this is done only to show greater alignment with Basel or any other international standard,” said Federal Reserve Vice Chair for Supervision Michelle Bowman, who led the proposal's development.

Kathryn Judge, a professor at Columbia Law School, said the revisions “will make it more challenging for the U.S. to use Basel, as it so often has, to further its own agenda.”

In the U.K., post-Brexit capital rules are projected to affect banks less than in the EU. A Prudential Regulation Authority spokesperson said its approach aligns with final rules setting market risk implementation for 2028.

The European Commission, Basel Committee on Banking Supervision, and Federal Reserve declined to comment.

*Bjarke Smith-Meyer and Elliot Gulliver-Needham contributed to this report.*

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