Questions and Answers About New Basel III Endgame Notices of Proposed Rulemaking

Client Alert
Our March 25, 2026 Client Alert “Federal Banking Agencies Issue Revised Basel III Endgame Notices of Proposed Rulemaking and Proposed Amendments to Existing Standardized Approach” described that the three federal banking agencies¹ jointly issued two “notices of proposed rulemaking” (each an NPR) captioned (1) “Regulatory Capital Rule: Category I and II Banking Organizations, Banking Organizations With Significant Trading Activity, and Optional Adoption for Other Banking Organizations” (ERBA NPR) and (2) “Regulatory Capital Rules: Regulatory Capital and Standardized Approach for Risk-weighted Assets” (SA NPR).

As outlined in our March 25, 2026 Client Alert, (1) the ERBA NPR proposes to replace the existing “advanced approaches” for computing risk-weighted assets (RWAs) with an “enhanced risk-based approach” and to revise the existing “market risk” rule, and (2) the SA NPR proposes to revise the existing “standardized approach” for computing RWAs and to revise how Category III and IV banks compute their regulatory capital. The ERBA NPR, as published in the Federal Register, is available here. The SA NPR, as published in the Federal Register, is available here. In endnotes to this Client Alert, we refer to pages in the Federal Register version of each NPR for various features of that NPR.

Background to the NPRs

When the agencies enacted the US Basel III rule in 2013, they required banks with $250 billion or more in assets to compute RWAs under both the Standardized Approach (codified in Subpart D of the rule) and the Advanced Approaches (codified in Subpart E of the rule), with the larger of the two RWA computations being the RWAs used to determine compliance with minimum capital requirements.

In 2019, consistent with 2018 legislation calling for greater “tailoring” of bank prudential standards, the agencies increased that threshold to $750 billion as part of establishing four categories of bank holding companies (BHCs) with $100 billion or more in assets. The four categories are:

CATEGORY I: BHCs that are G-SIBs (i.e., “globally systemically important banks”²), and their bank subsidiaries.

CATEGORY II: BHCs with $750 billion or more in assets (or $75 billion in cross-jurisdictional activity) that are not G-SIBs, and their bank subsidiaries.

CATEGORY III: BHCs that are neither Category I nor II BHCs but have $250 billion or more in assets (or $75 billion in nonbanking assets, short-term wholesale funding, or off-balance sheet exposures), and their bank subsidiaries.

CATEGORY IV: BHCs that are not Category I, II, or III BHCs, but have $100 billion or more in assets, and their bank subsidiaries.³

Currently, US banks report RWAs under three separate approaches:

• The Standardized Approach (Subpart D of the US Basel III rule), which applies to all BHCs and banks (other than small community banks that continue to report RWAs only under the US Basel I rule and other community banks that have qualified for a program established in 2019 to limit to a simple leverage ratio the capital requirements for certain community banks).
• The Advanced Approaches (Subpart E of the US Basel III rule), which apply only to Category I and II BHCs and their subsidiary banks.
• The Market Risk rule (Subpart F of the US Basel III rule), which applies to BHCs and banks with significant trading assets.

The Proposed Rule Amendments in the Two NPRs

The proposed amendments to the US Basel III rule contained (1) in the ERBA NPR would establish a single standard for how RWAs are reported by Category I and II BHCs and their subsidiary banks based on the 2017 Basel Framework’s standardized approach and (2) in the SA NPR would revise various features of the existing Standardized Approach, which was based primarily upon the original 1988 Basel Accord, including by adopting some features proposed in the ERBA NPR.

What would the amendments proposed in the SA NPR do to the US Basel III rule?

They would revise several provisions of the Subpart D Standardized Approach to:

• reduce from 100% to 95% the risk weight for corporate exposures, reduce from 100% to 90% the risk weight for all assets not specifically assigned a different risk weight under the rule (which would primarily affect retail exposures), and introduce variable risk weights for residential real estate exposures based on criteria included in the ERBA NPR.
• adopt the same definition of commitment as proposed in the ERBA NPR and align with the ERBA NPR proposal the credit conversion factors (CCF) for certain off-balance sheet exposures (particularly a single 40% CCF for both short and long-term non-cancellable commitments).
• make “targeted adjustments to the existing methodologies” in the Standardized Approach treatment of securitizations that would be consistent with proposals in the ERBA NPR.
• eliminate the “threshold-based deduction” from regulatory capital for mortgage servicing rights (MSAs) above a certain amount, so that all MSAs would be assigned a 250% risk weight and no MSA amount would be deducted from regulatory capital.
• require all Category III and IV banking organizations to include most elements of “accumulated other comprehensive income” (AOCI) in their computation of common equity tier 1 (CET 1) capital. This would eliminate for all Category III and IV BHCs and their subsidiary banks the option they have currently to “opt-out” from including such AOCI in CET 1 capital computations.⁴

Our March 26, 2026, Client Alert titled “March 2026 Proposed Changes to US Bank Capital Rules: Implications for Securitization Transactions” reviews how the SA NPR would make “targeted adjustments” to the Standardized Approach’s treatment of securitizations.

We will issue a separate Client Alert describing how the amendments proposed in the SA NPR would revise risk weights and CCFs under the Standardized Approach and how those risk weights and CCFs would compare with those proposed in the ERBA NPR.

What would the amendments proposed in the ERBA NPR do to the US Basel III rule?

• Replace the existing US Basel III risk-based capital rule “Subpart E—Risk-Weighted Assets—Internal Ratings-Based and Advanced Measurement” approach (Advanced Approaches) with a new “Subpart E—Risk-Weighted Assets—Expanded Risk-Based Approach” (ERB Approach).
• Replace the existing US Basel III risk-based capital rule “Subpart F—Risk-weighted Assets—Market Risk” with a new “Subpart F—Risk-Weighted Assets—Market Risk and Credit Valuation Adjustment (CVA)”
• Add definitions to the rule, or revise existing definitions in the rule, to accommodate the new ERB Approach, the elimination of the Advanced Approaches, and the new market risk rule, while also removing or correcting or revising some existing definitions.

How would the proposed Subpart E change existing US Basel III rule requirements?

The proposed new Subpart E would mean:

• The Advanced Approaches would be eliminated. No BHC or bank would report RWAs under the Advanced Approaches. Currently, Category I-II BHCs and their subsidiary banks are required to report Advanced Approaches RWAs.
• All Category I-II BHCs and their subsidiary banks would be required to:
  • report credit risk RWAs under the completely new ERB Approach.
  • report “operational risk” RWAs under a new operational risk framework in the new Subpart E.

BHCs and their subsidiary banks reporting RWAs under Subpart E would not be required to separately compute SA RWAs and use the higher of the two RWA computations to determine capital requirement compliance.

• All Category III-IV BHCs and all BHCs that are not Category I-IV BHCs would have the option to adopt the same new Subpart E methods for reporting RWAs in lieu of reporting RWAs under the SA.

How would the proposed new Subpart E ERB Approach methodology for computing RWAs differ from the existing Subpart E Advanced Approaches?

Completely. The proposed ERB Approach is based upon the “standardized approach” contained in the updated “Basel Framework” finalized in 2017. That standardized approach retains the basic features of the original 1988 “Basel Accord” that assigned risk weights to various categories of counterparties and “credit conversion factors” to “off-balance sheet exposures” so that both on-balance sheet exposures (at par) and off-balance sheet exposures (based on their CCFs) could be “risk weighted” to produce “risk weighted assets.”

The proposed ERB Approach would be a new version of this basic approach, different from the Subpart D Standardized Approach (which would remain in effect and is proposed to be amended in the SA NPR) by providing different risk weights for some exposures (including some newly identified types of exposures) and different CCFs for some off-balance sheet exposures.

Under the proposed new Subpart E, the Advanced Approaches and their basis in “internal bank models” would be eliminated. No element of that approach would remain in Subpart E.

Unlike under the current US Basel III rule, and unlike the 2023 proposal to establish a different ERB approach, the agencies propose that BHCs and banks would only compute and report RWAs based on the ERB Approach or the Standardized Approach, depending which applied to them. BHCs and banks reporting ERB Approach RWAs would, therefore, no longer be required to compute Standardized Approach RWAs and determine their capital compliance based upon the higher of the Standardized Approach RWAs and the other (currently “advanced approaches” and proposed to be ERB Approach) RWAs.

To implement this “one stack” approach, the agencies propose to eliminate from their US Basel III rule the statement that the Standardized Approach contains the “generally applicable risk-based capital requirements” and to insert into the Standardized Approach and the ERB Approach separate statements that the relevant Approach applies to the BHC or bank that elects to use it.⁵ Separately, the agencies propose to amend the US Basel III rule’s Section 10 minimum capital requirements to provide that the RWAs used to compute compliance are the “selected” RWAs computed by the relevant banking organization using its selected (or, in the case of Category I and II BHCs, its required) Approach.⁶

As mentioned above, we will issue a separate Client Alert describing how the proposed ERB Approach differs from the existing Standardized Approach (including as proposed to be amended in the SA NPR) in assigning risk weights and CCFs to various exposures.

In addition, the operational risk provisions in the proposed ERB Approach would be based on a “standardized approach” that is very different from the existing “advanced measurement approach” (AMA) that is currently part of the Advanced Approaches. As operational risk RWAs are currently part of total Advanced Approaches RWAs, operational risk RWAs computed under the ERB Approach in the proposed new Subpart E would be part of “Expanded Total” RWAs, if the proposal were adopted.

What BHCs and banks would be required to report RWAs under the proposed new Subpart E?

The proposed new Subpart E ERB Approach would be mandatory for all Category I-II BHCs and their bank subsidiaries. The current Subpart E Advanced Approaches are similarly mandatory for Category I and II BHCs and their bank subsidiaries.

The important difference is that all BHCs and banks reporting RWAs under Subpart E would no longer be required to report (or compute) separately RWAs under the Subpart D Standardized Approach.

What BHCs and banks would be permitted to report RWAs under the proposed new Subpart E?

All other BHCs, along with their subsidiary banks, could elect to report RWAs under the new Subpart E. Although this would include RWAs for operational risk that are not computed under the Standardized Approach, the agencies estimate that Category III and IV BHCs “would see a reduction in capital requirements in the range of three to seven percent if they were to choose to apply” the proposed ERB Approach instead of the Standardized Approach as proposed to be amended. Even for “banking organizations below Category IV,” the agencies estimate that “about a third” would “see reductions in capital requirements of between five and ten percent” and “a small number might see a reduction greater than ten percent,” if they chose to apply the proposed ERB Approach rather than the Standardized Approach, even as that is proposed to be amended.⁷

Any banking organization that chose to apply the ERB Approach (not only Category III and IV BHCs) would need to recognize AOCI in computing CET 1 capital, even if it later chose to apply the Standardized Approach. Category III and IV BHCs, of course, would need to do so even if they applied the Standardized Approach under the proposals in the NPRs.

The agencies propose that all banking organizations that become subject to the AOCI computation requirements (including Category III and IV BHCs) have a transitional period of 5 years from the effective date of the relevant rule.⁸

Although banking organizations (other than Category I and II BHCs, which must apply the ERB Approach under the proposals) could change their election to apply an Approach, the ERBA NPR proposes that any change would require prior notice to the relevant banking agency “at least four full calendar quarters before the calendar quarter in which the change will take effect.”⁹

How would the proposed Subpart F change existing US Basel III rule requirements for reporting CVA risk?

As the title of the proposed new Subpart F implies, it would contain both a new market risk rule and a CVA requirement for BHCs and banks that meet specified requirements. Currently, only BHCs and banks required to compute RWAs under the existing Subpart E Advanced Approaches are required to compute RWAs for CVA risk. Any BHC or bank required to report market risk RWAs would be required to compute RWAs for CVA risk, if it has at least $1 trillion in outstanding OTC derivatives notional amount, as described below.

How would the proposed Subpart F change the existing methodology for computing CVA risk RWAs?

CVA risk is the risk that counterparties on derivatives contracts that are not “cleared transactions” will experience credit deterioration that requires accounting charges to reflect the risk that such counterparties will not meet their obligations to the BHC or bank to which they may owe payment obligations. To establish a capital “reserve” for this risk, the existing Subpart E requires Advanced Approaches (i.e., Category I-II) BHCs and banks to compute CVA risk RWAs using either a “simple” or “advanced approaches” methodology.

The proposed new Subpart F would replace the CVA risk RWAs established under the eliminated Subpart E Advanced Approaches and apply the requirement to all Category I-II BHCs and banks, as under the withdrawn Advanced Approaches, and to all other firms subject to the Subpart F market risk requirements that have outstanding OTC derivatives exposures in a notional amount of $1 trillion or more.

How would the proposed Subpart F change what BHCs and banks are required to report market risk RWAs?

Currently, any banking organization with aggregate trading assets and trading liabilities that, as of the most recent calendar quarter, equal $1 billion or more, or 10% or more of the banking organization’s total assets, is required to compute market risk RWAs.

Under the proposal, a Category I or II BHC would automatically be subject to the requirement to compute market risk RWAs. All other banking organizations with average trading assets and trading liabilities, excluding customer and proprietary broker-dealer reserve bank accounts, over the previous four calendar quarters equal to $5 billion or more or equal to 10% or more of total consolidated assets at quarter end as reported on the most recent quarterly regulator report would be required to compute market risk RWAs.¹⁰

How would the proposed Subpart F change the existing methodology for computing market risk RWAs?

The proposed new Subpart F would permit market risk RWAs to be computed using a “standardized measure” or a “model-based measure” for market risk, subject to restrictions on the scope and use of internal “models.”¹¹

The existing Subpart F market risk rule provides for computing market risk RWAs based on “value at risk” (VAR) methodology. The proposed Subpart F would replace VAR methodology with “expected shortfall” methodology either in the “model-based measure” or through specified risk weights in the “standardized measure” that reflect expected shortfall methodology.¹²

The proposed Subpart F would establish the “standardized measure” as the “default methodology” and limit the use of a “model-based measure” approach to approved “trading desks” at a BHC or bank, rather than permitting the overall BHC or bank to use such approach.¹³

Would the ERBA NPR proposed Subpart F include an “output floor” as proposed in 2023 and included in the Basel Framework?

No. Question 6 on page 30 of the ERBA NPR notes that the output floor is not included “because proposed requirements would be almost completely standardized and, therefore, the output floor would be unlikely to bind in most situations.” Question 6, however, requests comments on the appropriateness of an output floor.

When must comments on the proposals be filed?

Both the ERBA NPR and the SA NPR stated that comments must be received by June 18, 2026.¹⁴

Is there an expected effective date for either proposal?

No. Both NPRs request comment on numerous questions. It is expected that many comments will be submitted and that any final rule release will include changes to the provisions proposed in the NPRs.

Question 2 in the ERBA NPR asks What would be an appropriate amount of time between the publication of any final rule and its effective date, and why?¹⁵

1. The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (FDIC).

2. The eight US G-SIBs are Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, State Street, and Wells Fargo.

3. For more on the BHC Categories see “Federal Banking Regulators Propose New Bank Holding Company Category System to Apply to Capital and Liquidity Requirements and to Enhanced Prudential Standards.” https://www.chapman.com/publication-Banking-Regulators-Captial-Liquidity-Standards

4. See page 15394 of the SA NPR for the agencies’ summary of these features in the SA NPR.

5. In our March 25, 2026, Client Alert titled “Federal Banking Agencies Issue Revised Basel III Endgame Notices of Proposed Rulemaking and Proposed Amendments to Existing Standardized Approach” https://www.chapman.com/publication-federal-banking-agencies-issue-revised-basel-iii-endgame-notices-of-proposed-rulemaking-and-proposed-amendments-to-existing-standardized-approach we noted that the SA NPR did not propose to amend Section 30 of the US Basel III rule, which currently establishes that the Standardized Approach contains the “generally applicable risk-based capital requirements.” The ERBA NPR proposes to amend Section 30 to state only that the Standardized Approach “sets forth methodologies for determining standardized risk-weighted assets” and that it “applies to any” banking organization “that elects to use” it. (See ERBA NPR page 1147 for the Federal Reserve’s proposed amendment to Section 217.30(a) of its Regulation Q.) Separately, the ERBA NPR proposes to include in the proposed new Subpart E ERB Approach, which begins with the proposed new Section 100 for the US Basel III rule, the statement that the ERBA “sets forth methodologies for determining expanded total risk-weighted assets” and that it applies to Category I and II banking organizations and “any banking organization that elects to use” it. (See ERBA NPR page 675 for proposed Section 100). The agencies do not designate either Approach as the “generally applicable” Approach. They appear to believe that either Approach meets the Collins Amendment requirement for the “minimum risk-based capital requirements.”

6. For the Federal Reserve’s version of the proposed amendment to Section 10, including the proposed Section 217.10(b)(5) “selected total risk-weighted assets” explanation, see page 15296 of the ERBA NPR.

7. ERBA NPR page 15100.

8. See page 15335 of the SA NPR and page 14957 of the ERBA NPR. Each year during this five-year transition period that would end 5 years after January 1 of the year following the effective date, the “adjustment amount” would reduce from 100% by 20% until it reached 0% upon the end of the transition period. For the proposed rule text, see page 435 of the SA NPR.

9. For the Federal Reserve’s proposed rule text on this issue, see page 15296 of the ERBA NPR, proposed Section 21710(b)(5).

10. See pages 15017 of ERBA NPR.

11. See ERBA NPR General requirements for market risk, Section V.A.6, starting at page 15029.

12. See ERBA NPR Section V.A.1. (b) (Overview of Proposal) beginning on page 15016.

13. Id.

14. See page 14952 of the ERBA NPR and page 15332 of the SA NPR in the heading “Dates.”

15. ERBA NPR page 14957.

Relevant Documents