Fed capital proposals target securitization

The Federal Reserve and other bank regulators have reopened their capital rewrite with changes that ease a key pressure point for securitization and warehouse funding. (federalreserve.gov) On March 19, 2026, the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency issued three proposals and set a June 18, 2026 comment deadline. The package revises Basel III endgame rules for the biggest banks, rewrites parts of the standardized approach for other banks, and changes the global systemically important bank surcharge. (fdic.gov, federalreserve.gov) For the largest banks, the agencies would replace today’s two-track capital test with one “expanded risk-based approach.” Category I and Category II firms would use that single framework for credit, market, operational and credit valuation adjustment risk. (federalreserve.gov, federalreserve.gov) Securitization is the process of bundling loans and selling bonds backed by those payments, while warehouse funding is the short-term credit that carries loans until they are sold or securitized. Finance companies and nonbank lenders rely heavily on that chain in auto, credit-card and other consumer lending. (federalreserve.gov, richmondfed.org) That funding chain became a flash point after the agencies’ July 27, 2023 proposal. The March 2026 reproposal rescinds that earlier package and narrows who must use the new framework, leaving the expanded risk-based approach mandatory for Category I and II banks instead of Categories I through IV. (ey.com, sullcrom.com) Law firms tracking the proposal said the new notices still change capital treatment for securitization exposures, but the narrower scope reduces the number of banks directly pushed into the tougher framework. Chapman and Cutler said the securitization provisions in the new expanded risk-based approach and the revised standardized approach are “substantively identical.” (chapman.com, sullcrom.com) The agencies also say the broader rewrite is meant to better match capital to actual lending risk and remove some post-crisis distortions. The standardized-approach proposal modifies risk weights for lending exposures, removes the threshold-based deduction for mortgage servicing assets, and phases in recognition of most unrealized securities gains and losses for Category III and IV banks over five years. (fdic.gov, fdic.gov, sullcrom.com) Vice Chair for Supervision Michelle Bowman said before the vote that the package would trim capital requirements “by a small amount” for the largest banks and by slightly more for smaller banks. EY said the agencies estimated the Basel III and surcharge proposals together would reduce common equity tier 1 requirements by an average of 2.4% for the eight global systemically important banks and the single Category II bank. (bankingjournal.aba.com, ey.com) Bank trade groups welcomed the rewrite as a response to criticism of the 2023 draft, while Governor Michael Barr dissented when the Federal Reserve approved the March 2026 package. The next fight is in the comment file, where lenders, banks and investors will try to shape how the final rule treats the funding pipes behind consumer credit. (sullcrom.com, bankingjournal.aba.com, federalreserve.gov)