What Comes Next for U.S. Capital Rules?

Regulators are approaching the next major phase of their work on the capital framework.

Federal Reserve Vice Chair for Supervision Michelle Bowman said last week that the Board expects to consider final revisions to its stress-testing framework in the coming weeks, with broader changes to bank capital rules set to follow before year-end. Bowman said the reforms are intended to produce capital requirements that are more transparent and better matched to risk.

The next phase will determine whether the different pieces of the capital framework work together as intended. Rules that overlap, create unnecessary volatility, or fail to reflect actual risk can affect where financial activity takes place and how effectively U.S. institutions compete in global markets.

As regulators move toward final rules, the focus will be on whether the overall framework is clear, predictable, and tied to genuine risk.

Getting capital requirements right

As The Ledger Project has highlighted over the last few months, well-calibrated capital requirements can support both a resilient banking system and the flow of credit through the economy. Getting that balance right means avoiding unnecessary costs that can ultimately affect lending, investment, and economic growth.

The effects of capital requirements also extend to U.S. competitiveness. As regulators have noted, a framework that accurately reflects the level of risk involved can help keep lending within the regulated banking system while allowing U.S. financial institutions to compete globally and finance major investments across the economy.

Competitive Enterprise Institute Senior Fellow and Director of Finance Policy John Berlau noted, "Overly restrictive capital rules put the U.S. economy at a disadvantage."

• He added, "The rules also put U.S. banks at a disadvantage to large foreign banks that may not have such constricting capital rules."

What comes next

Bowman said the stress test revisions are expected first, with additional capital reforms expected by the end of the year.

The Ledger Project will continue tracking how the final framework addresses risk sensitivity, transparency, and the interaction between stress testing and broader capital requirements—and what those decisions ultimately mean for households, businesses, and the broader economy.

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