US Regulatory Capital Rules 2023: Impact and Implementation for Banks

It has been 15 years since the Global Financial Crisis reshaped the financial world. The failures of that crisis have informed global regulators, who are determined to prevent a repeat by setting new rules that standardise how banks calculate the amount of capital they need to hold to be viable and serve the economy and their clients. These new rules, often called Basel III or FRTB, are slowly being incorporated into national legislation across the globe. The US is the latest major country to issue its interpretation of the Basel III rules.


George has more than 22 years of Financial Services experience, specialising in Trading and Risk Management.

George Petropoulos
Chief Product Officer, Pricing & Risk

Emerging Regulatory Responses: The U.S. Approach

The latest proposals issued by US Federal banking regulators in July 2023 demonstrate that financial regulation does not have an “end state” but a “dynamic state” that constantly interacts with the financial ecosystem. Following the collapse of SVB and the ensuing aftermath in March 2023, regulators have found an opportunity to expand the regulatory capital rules under the final components of the Basel III agreement, also known as the Basel III endgame. The proposed regulatory capital rules would apply to a broader set of financial institutions in the US with the aim of strengthening the banking system.

Unveiling the proposed Rules

The new rules will apply to all banks with over $100 billion in total assets (banking organisations subject to Category I, II, III, or IV capital standards) and include unrealised gains or losses on available-for-sale securities in regulatory capital. In addition, the Capital proposal would:

Proposed Scope of NPR for Large Banking Organisations (Source: Federal Reserve)

  • Suggest replacing the advanced approaches for credit and operational risks with a standardised framework
  • Require large banking organisations to calculate their Risk-Weighted Assets (RWAs) using the existing standardised approach and expanded risk-based approach (dual requirement framework) and use the higher of the two to meet minimum capital requirements
  • Introduce a revised Market Risk capital rule applicable to smaller banking organisations with trading assets and liabilities exceeding $5 billion or 10% of total assets
  • Impose stricter requirements for using models to calculate market risk
  • Impose an output floor that would limit the amount that capital calculated with internal models under the expanded risk-based approach could deviate from the expanded standardised approach to 72.5%

Standardised Approach and Expanded Risk-Based Approach (Source: Federal Reserve)

Challenges and Adaptations

Although the proposed rule allows for a three-year phase-in, most banks will require considerable efforts to comply with the changes to the Market, Credit, CVA, and Operational capital charges. The overall push towards standardised approaches does not necessarily translate into an easier implementation, as the demands for sourcing and manipulating various data types (enriched transaction data, reference data, and risk factor data) are high. The ongoing monitoring and reporting of the new capital measures will also be costly.

Anticipated Impact on Banking Categories

For larger banks that fall into Categories I, II, and III, some of the existing infrastructure may be leveraged to support the implementation of the new rules. However, Category IV banks will require more effort to implement the market risk, operational, and CVA risk rules and move away from the current exposure method to adopt the standardised approach to counterparty credit risk (SA-CCR).

Looking Ahead: Preparing for Increased Requirements

The new rules are expected to increase CET1 requirements by an aggregate of 16%, an increase that, according to the US regulators, will be borne by the largest and most complex banks. This increase, plus the costs involved in implementing and monitoring the new rules, will raise the cost of equity and debt for banks in the short run. However, appropriate actions taken by banks early enough and during the transition period can mitigate these costs in the medium term. The actions will be informed largely by the business model and the activity booked in banks’ balance sheets.

Delta Capita: Your Partner in Navigating Regulatory Change

Delta Capita can offer support to banks, from analysing capital impacts that inform decision-making to methodology and program support. We can provide IT solutions that are FRTB and SA-CCR compliant and can support the implementation of such solutions. Our financial risk and risk analytics practice can also provide highly specialised quantitative support to develop models and tactical solutions in support of adopting the new rules.

To find out more and speak to one of our experts, contact us today.