US Proposes Final Basel Rules, Transition Period to Start in July 2025
The U.S. banking agencies (FDIC, FED, and OCC) recently proposed rules implementing the final Basel III reforms, also known as the Basel III Endgame. The rules, which have been proposed post the banking turmoil in March 2023, seek to further strengthen the banking system by applying a broader set of capital requirements to more large banks. In a separate notice, the Federal Reserve Board also proposed certain adjustments to the calculation of the capital surcharge for the largest and most complex banks. The comment period on both proposals, which is longer than usual, ends on November 30, 2023 while the speculation indicates that the U.S. regulators are likely to finalize these rules by mid-2024.
Summary of proposed changes
The proposal would apply to larger banks with more than USD 100 billion in total consolidated assets but would not impact the community banks. For banks below $100 billion in total assets, the market risk provisions of the proposal would also apply to those with significant trading activity. For banks with more than USD 100 billion in assets, the proposal would:
- revise aspects of the capital framework related to credit risk, market risk, operational risk, and financial derivative risk.
- improve consistency and replace internal-models-based capital requirements for credit and operational risk currently included in Category I or II capital standards with new, risk-sensitive standardized requirements (the “expanded risk-based approach”) that would apply to all banking organizations with USD 100 billion or more in total assets (that is, banking organizations subject to Category I, II, III, or IV capital standards)
- require banks to include unrealized gains and losses from certain securities in their capital ratios.
- subject these banks to the supplementary leverage ratio requirement and the countercyclical capital buffer, if activated.
- replace the current approaches for measuring capital requirements for credit valuation adjustment (CVA) risk for OTC derivative contracts with non-model-based approaches, including a less burdensome option intended for less complex banking organizations.
- revise certain existing qualitative disclosure requirements and introduce new and enhanced qualitative disclosure requirements related to the proposed revisions to the capital rule.
- result in revisions to the reporting forms of the Federal Financial Institutions Examination Council (FFIEC) for affected banking organizations (to be proposed separately).
Proposed timelines
As proposed, the implementation of these final components of Basel III reforms should start from July 01, 2025, with full compliance expected by July 01, 2028. The transition provisions built into the proposal are intended to give banks sufficient time to adapt to the changes while minimizing any potential adverse impact. For banking organizations subject to Category III or IV standards, the requirement to reflect in regulatory capital accumulated other comprehensive income (AOCI), which includes unrealized gains and losses on available-for-sale securities, would be phased in over three years starting July 01, 2025.
Impact and market response
The proposed rules are estimated to bring into this regulatory net another 16 domestic banks and the intermediate holding companies of 12 foreign banks. As per the press release from US Agencies, the proposed improvements to strengthen the banking system are estimated to result in an aggregate 16% increase in common equity tier 1 capital requirements for affected bank holding companies, with the increase principally affecting the largest and most complex banks. However, various estimates from market participants differ and peg this increase to be in the range of 16% to 25%. The proposal is receiving adverse response from certain market participants and even certain members of the regulatory bodies in the country are divided in their stance toward these proposed rules. Yet another group of stakeholders emphasize the need for a balance between safeguarding the banking system and the costs associated with requiring higher capital from the banks. Considering that the proposal has a longer than usual comment period, the existing, market sentiment, and the fact that regulators say that "all comments will be carefully considered," it is speculated by some that the there is a possibility that the final version of the proposal may be quite different from this proposed version.
Visit the Moody’s Analytics microsite for Banking Cloud Solutions to find out how our solutions help banks get up-to-date with the latest capital adequacy requirements and address the regulatory reporting requirements.
Related Regulatory References
Keywords: Americas, US, Banking, Basel, Final Basel III Reforms, Basel Endgame, Reporting, G-SIBs, US Agencies
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Scott Dietz
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
Previous Article
FSB Report Outlines Next Steps for Climate Risk RoadmapRelated Articles
EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
BCBS and EBA Publish Results of Basel III Monitoring Exercise
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
PRA Updates Timeline for Final Basel III Rules, Issues Other Updates
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
US Treasury Sets Out Principles for Net-Zero Financing
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
EC Launches Survey on G7 Principles on Generative AI
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.