Regulatory Capital Rule: Modernization for Category I and II Banking Organizations and Organizations With Significant Trading Activity
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The OCC, Federal Reserve, and FDIC are jointly proposing a major overhaul of capital requirements for the largest and most systemically important U.S. banking organizations — specifically Category I (globally systemic) and Category II (large, complex) depository institution holding companies and their subsidiary depository institutions. The proposal aims to modernize a framework that has evolved piecemeal since the Basel III reforms, making it more risk-sensitive and internally consistent. A central element of the proposal is a revised market risk capital framework targeting banking organizations with significant trading activity. This would update how banks calculate capital charges for trading book exposures, potentially incorporating revised standardized and internal model-based approaches aligned with the Basel 'Fundamental Review of the Trading Book' (FRTB) standards. The agencies emphasize that the changes are designed to simplify core structural components of the capital framework while improving accuracy in measuring risk. The stated goal is to ensure banks hold capital commensurate with their actual risk profiles — neither excessive nor insufficient — thereby supporting both safety and soundness and continued lending across economic cycles. This is a proposed rule open for public comment, meaning final requirements have not yet been set. The optional adoption provision suggests smaller or less complex banking organizations outside Categories I and II may voluntarily elect to apply certain elements of the new framework.
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Key Changes
- Revised capital requirements specifically for Category I (globally systemic) and Category II (large/complex) U.S. banking holding companies and their depository institution subsidiaries
- Overhaul of the market risk capital framework for banking organizations with significant trading activity, likely incorporating FRTB-aligned standardized and internal model approaches
- Enhanced risk sensitivity across capital calculations to better align required capital with actual risk exposures
+ 3 more changes with Pro
Obligations
What this law requires
Category I and II depository institution holding companies and their subsidiary depository institutions must comply with modernized capital requirements as finalized by OCC, Federal Reserve, and FDIC
Banking organizations with significant trading activity must calculate capital charges for trading book exposures using revised standardized and/or internal model-based approaches aligned with Basel FRTB standards
Category I and II banking organizations must ensure capital holdings are commensurate with their actual risk profiles as determined under the modernized framework
Covered banking organizations must report capital calculations and risk measurements using the updated framework structure and methodologies once final rule is effective
Banking organizations may voluntarily elect to apply certain elements of the new capital framework if they are smaller or less complex organizations outside Categories I and II