NextFin News - Major U.S. banking trade groups are preparing a coordinated push to further dilute the Federal Reserve’s revised capital requirements, signaling that the industry views the central bank’s recent concessions as merely a starting point for deeper deregulation. According to a Bloomberg report on Tuesday, lobbyists representing the nation’s largest lenders are targeting specific provisions in the "Basel III Endgame" proposal that they argue still overstate the risk of certain business lines, despite a significant retreat by regulators last month.
The current friction follows a pivotal March 19 announcement where U.S. federal banking regulators, led by the Federal Reserve, the FDIC, and the OCC, issued a significantly softened version of their original 2023 capital plan. Under the revised framework, the aggregate capital increase for the largest banks was slashed from an initial 19% to roughly 9%. Federal Reserve Chair Jerome Powell stated at the time that the new proposal was intended to "preserve the overall calibration of the core capital requirements" while addressing industry concerns regarding operational and market risk calculations. However, the KBW Nasdaq Bank Index, which tracks the performance of leading U.S. lenders, stood at 169.19 on Tuesday, reflecting a market that remains sensitive to the ongoing tug-of-war between regulators and the C-suite.
The industry’s primary grievance now centers on the risk-weighting of mortgage servicing rights and the treatment of fee-based income. While the March proposal removed the requirement for banks to deduct mortgage servicing rights from their common equity tier 1 capital—replacing it with a 250% risk weight—trade groups argue this still penalizes banks that provide essential liquidity to the housing market. This aggressive stance by the banking lobby is bolstered by the political shift in Washington. Since U.S. President Trump took office in January 2025, the administration has signaled a preference for reduced regulatory burdens, creating a tailwind for industry advocates who believe the Fed can be pushed even further.
Bruce Richards, CEO of Marathon Asset Management, has been a vocal proponent of this deregulatory shift. Richards, known for his long-standing view that excessive capital requirements stifle credit availability and economic growth, recently suggested that the Basel III framework in its current form is effectively "dead" under the second Trump administration. While Richards’ perspective is widely shared among alternative asset managers and some large-cap bank executives, it does not represent a universal consensus. Some former regulatory officials and consumer advocacy groups warn that further eroding capital buffers could leave the financial system vulnerable to the kind of liquidity shocks seen during the 2023 regional banking crisis.
The broader economic environment adds another layer of complexity to the debate. With Brent crude oil trading at $103.94 per barrel and spot gold prices reaching $4,591.965 per ounce, inflationary pressures and geopolitical uncertainty remain elevated. Critics of the banking lobby’s push argue that during periods of high commodity volatility and global instability, robust capital levels are the only reliable defense against systemic contagion. They contend that the 9% increase currently proposed is a necessary compromise to ensure that the "too big to fail" institutions can weather a potential downturn without taxpayer intervention.
The Federal Reserve now finds itself in a delicate position, attempting to finalize a decade-long global regulatory project while facing a hostile executive branch and a relentless industry lobby. The outcome of these negotiations will likely determine the lending capacity of the U.S. financial system for the next decade. If the trade groups succeed in their latest effort, the final "Endgame" may look less like a tightening of the screws and more like a validation of the industry’s existing risk models, effectively ending the era of post-2008 regulatory expansion.
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