The US bank regulatory agencies recently approved a final rule (“Final Rule”) to establish a new comprehensive regulatory capital framework for US banking organizations. The Final Rule brings the United States substantially into compliance with the Basel III international capital framework and implements various capital-related provisions of the Dodd-Frank Act. The new US capital regime established by the Final Rule includes higher minimum capital requirements, additional capital buffers above those minimum requirements, a more restrictive definition of capital, and higher risk weights for various assets, which together result in substantially more demanding capital standards for all US banking organizations.
While the Final Rule is purported by some to represent the “last step” in reform of the US regulatory capital framework for the vast majority of US banks, significant additional capital measures are still to come for the largest US banking organizations, including a recently proposed enhanced supplementary leverage ratio for US-based Global Systemically Important Banks (“G-SIBs”). In addition, several recent proposals by the Basel Committee on Banking Supervision suggest that further changes to various aspects of the Final Rule that apply to all banking organizations may also be forthcoming. This Legal Update identifies key aspects of the Final Rule, describes key changes from both the existing US capital rules and the 2012 US capital proposals that formed the basis for the Final Rule, and highlights and places in context the forthcoming additional capital requirements for the largest US banking organizations as well as other possible future changes to the Final Rule.