In a March 12 speech, Fed Vice Chair for Supervision Michelle Bowman announced that the Fed will propose rules in the coming weeks to implement the final phase of Basel III in the U.S. in coordination with the OCC and the FDIC. According to the remarks, the proposals address two of the four pillars of the regulatory capital framework: Basel III risk-based capital requirements and the Global Systemically Important Banks (G-SIB) surcharge, while changes to stress testing (covered by InfoBytes here) and the enhanced supplementary leverage ratio (covered here) have already been initiated. According to Bowman, the Basel III proposal would replace the current requirement that the largest banks maintain two sets of risk-based capital ratios with a single methodology incorporating U.S.-specific adjustments for credit, operational and market risk to improve risk alignment.

Bowman also described a new standardized approach for most banks that would “moderately reduce” capital requirements and align them with the Basel III proposal. Both proposals would remove the requirement to deduct mortgage servicing assets from regulatory capital, instead assigning a 250 percent risk weight to such assets, subject to public comment. Bowman contended this change would reduce incentives for mortgage origination and servicing to migrate to nonbank providers, reiterating concerns raised in separate recent remarks (covered here). On the G-SIB surcharge, she explained that the proposal would recalibrate coefficients, index the surcharge to economic growth, and shift calculations from year-end values to daily or monthly averages. Bowman asserted the combined effect of the proposals would be a small overall decrease in capital requirements for the largest banks, with slightly larger reductions for smaller banks focused on traditional lending.