Capital Proposals

KPMG Regulatory Insights

Net Capital Relief: The proposed revisions to the risk-based capital framework align more closely with the Basel standards and work together with other related rulemaking activity including stress testing and leverage capital resulting in a potential for net capital relief. Recalibration could create opportunities for banks to reassess binding constraints, release excess management buffers, and redeploy capital toward lending growth, balance sheet optimization, and M&A.

Simplification: Category I and Category II firms are no longer required to calculate two parallel sets (e.g., standardized and advanced approaches) of risk-based capital ratios, adopting a single approach, the “expanded risk-based approach.” Category III and Category IV firms retain a revised “standardized approach.”

Modernization: To better align capital with observed risk, operational risk is explicitly included in risk-weighted assets, using a business indicator-based component, including a noninterest component that downscales for certain treasury and investment services. Proposals to modify capital requirements for servicing and originating mortgages are intended to align capital requirements for traditional lending activities with risk.

Minimization: Although the stress capital buffer (SCB) remains applicable, operational risk losses and global market shocks would be adjusted in stress testing to minimize double‑counting between stress tests and proposed Basel III rules. Stress tests remain a forward-looking backstop, but with a lower SCB. 

Implementation: While there is a 90-day public comment period, the proposals are generally silent to effective dates and implementation; given the expected overall “moderate” capital impact, there is potential for implementation to exclude a phase-in when effective dates are announced.