ATR Submits Comment Letter on Revised Basel Endgame Proposal

On June 18^th, 2026, Americans for Tax Reform submitted comments to the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) regarding three proposed rulemakings to implement a bank capital framework known as the Basel III endgame.  

The Basel endgame rules were initially proposed under the Biden administration and represented a final set of bank capital recommendations published in 2017 under the Basel Committee on Banking Supervision, a consortium of central banks and financial regulators around the world, to promote financial stability, though it is worth noting that these rules are essentially non-binding and regulators have a wide range of discretion when it comes to tailoring the rules in their home countries. 

The Basel III endgame rules are a set of regulatory recommendations for capital adequacy for large banks. It contains many components, but the most consequential parts include risk-weights for asset categories (judging the riskiness of an asset and how much equity has to be held against that asset), minimum capital requirements, calculations for market, operating, and credit risk for trading desks and derivative contracts, and capital surcharge calculations for large and systemically important banks, otherwise known as the GSIB surcharge. All together, these rules were meant to finalize post-crisis reforms in the wake of the global financial crisis in 2008.  

They also represent significant regulatory burdens for banks and the financial sector at large. When the first set of proposed rules was issued by the agencies, opposition to them was widespread. This was because major banks would have seen double-digit percentage increases in the capital they would be required to hold. This would have constricted lending and raised borrowing costs. The agencies accompanied their rules with scant reasoning and evidence for justifying the major increase in capital requirements that in many respects were set higher than the recommendations in the original Basel endgame framework.  

The new rules, however, appeared to have considered the feedback the agencies collected back in 2023. The new rules are now meant to decrease capital requirements broadly and modify existing regulations such as the GSIB surcharge to render them less punitive and more risk-sensitive.  

Other provisions include eliminating the “dual-stack” capital requirement which previously forced banks to use their internal-models and supervisor-approved models to determine risk weights and then apply the stricter of the two approaches. Risk weights for residential and commercial mortgages have been modified by adding a wide range of Loan-to-Value (LTV) bands, applying lower risk weights for lower-risk mortgage exposures, and allowing the risk-weights of mortgages to fall throughout the lifetime of the loan as it gets paid off. 

In addition, significant revisions were made to the GSIB surcharge calculation methodology under Method 2. The usage of 10 basis point increments over 50 basis points will further align the calculated surcharge with actual risk sensitivity and mitigate the “cliff effects” associated with using wider-ranging surcharge buckets.  

The method 2 surcharge will also include a downward revision of the coefficients used in its calculation by a factor of 1.2. This was a necessary change as the Fed recognized that applicable method 2 scores increasingly diverged away from method 1 scores after 2020. In recognizing the need to account for structural economic changes, the proposal also proposes indexing coefficients to a macroeconomic indicator such as inflation or nominal GDP growth to prevent artificial inflation of the GSIB surcharge. 

These changes are necessary and are warranted. They are not, however, exhaustive tweaks. Other parts of the proposal should be revised in the final rule. One such standout is Mortgage Servicing Asset (MSA) risk-weighting. MSAs receive a risk weight of 250%, but under the new rules they are no longer can be used to deduct from Common Equity Tier 1 (CET1). The letter points out how MSAs can act as a natural interest rate risk hedge. 

The letter supports the revisions for the method 2 surcharge calculation, but also calls for prudence in determining whether a second GSIB calculation method is warranted. American regulators should not go beyond the baseline recommendations for capital requirements in a manner that would end up disadvantaging American banks. Other jurisdictions such as the E.U. and the U.K. use the method 1 surcharge calculation for their GSIBs.  

The new proposal is a marked improvement from the 2023 proposal under the Biden administration. The proposal still contains areas for improvement that regulators should fix. Absent such revisions, the Basel Endgame rules risk reducing the competitiveness of the U.S. financial sector, unnecessarily increasing the cost of lending, consumer financial services, and specialized financial products whose increased costs risk being passed down onto consumers.  

A copy of the letter can be read here.