Fed Guts Basel III Endgame After 97% Opposition, Slashes Capital Requirements Across All Bank Tiers
After 97% of commenters rejected the original Basel III endgame proposal, U.S. regulators reversed course. Capital requirements for the largest banks will drop 4.8%. For regionals under $100B, the cut is 7.8%. The lending landscape just shifted.
What happened: On March 19, the Federal Reserve, FDIC, and OCC jointly unveiled a re-proposal of the Basel III endgame framework. The original July 2023 proposal would have increased capital requirements for Global Systemically Important Banks (G-SIBs) by nearly 19%. The new version reverses that entirely. Wall Street bank capital will decline 4.8% under the revised rules. Larger regional banks see a 5.2% drop. Banks below $100B in assets get a 7.8% reduction.12
The numbers: The Fed had already approved supplementary leverage ratio (eSLR) reforms effective April 1, 2026, which reduce G-SIB capital requirements by $13B and subsidiary requirements by $219B, a 28% decrease. Combined with the new Basel III re-proposal, banks will have significantly more lending capacity across every tier.1
The timeline: Financial firms have a 90-day comment window. Fed Vice Chair for Supervision Michelle Bowman has targeted a "relatively short time frame" for implementation. The eSLR reforms take effect April 1, 2026. The full Basel III re-proposal could be finalized by late 2026.2
Context
The original Basel III endgame proposal was one of the most contested banking regulations in recent history. During the comment period, over 97% of respondents opposed it, arguing the capital increases would restrict lending and raise borrowing costs. Vice Chair Bowman called the re-proposal a "sensible recalibration" that removes "redundant standards." The American Bankers Association, Financial Services Forum, and Bank Policy Institute all praised the framework.12
What is the four-pillar framework Bowman proposed?
Vice Chair Bowman outlined four areas of regulatory recalibration on March 12, with the formal proposal released March 19:2
Stress testing reform: Revisions to how banks' capital buffers are calculated under annual stress tests, reducing volatility in required capital levels
Supplementary leverage ratio (eSLR): Already approved. G-SIBs get $13B freed; subsidiaries get $219B freed (28% reduction). Effective April 1, 2026
Basel III risk-based capital: The re-proposal. Large banks face a "small increase" in risk-based requirements, but it is more than offset by the G-SIB surcharge reduction
G-SIB surcharge: A "modest decrease" for the largest institutions. JPMorgan Chase and Goldman Sachs specifically benefit from the recalibrated surcharge offsetting Basel III increases
Bowman emphasized a "bottom-up" methodology: "Each requirement is evaluated on its merits, examining whether it is properly calibrated to risk." The net effect across all four pillars is a reduction in required capital at every bank tier.2
Why should alternative lenders care about bank capital rules?
When banks hold more capital in reserve, they have less to deploy as loans. When capital requirements drop, banks can lend more aggressively. The 4.8% to 7.8% capital reductions across bank tiers translate directly into expanded lending capacity.
For alternative lenders, this creates two dynamics:
More competition for creditworthy borrowers: Banks with freed capital will push deeper into segments that alternative lenders currently serve. Small business lending, commercial real estate bridge loans, and working capital facilities are the first markets where banks will deploy excess reserves. Community banks already lend 75 cents per dollar of deposits versus 40 cents for large banks, and they provide approximately 40% of all small business lending. Loosened capital rules give them even more room to compete.3
But also more warehouse and participation capital: The same freed reserves mean banks have more capacity to fund warehouse lines, participate in syndicated deals, and provide back-leverage to lending funds. If your capital comes through a bank-funded warehouse facility, your advance rates and pricing may improve as banks compete to deploy freed capital
Who wins and who loses under the new rules?
The distribution is uneven, and the critics are loud.
G-SIBs win the most: JPMorgan, Goldman Sachs, and other G-SIBs benefit from the surcharge reduction combined with eSLR reform. These are the same banks that finance private credit funds and warehouse lines for alternative lenders
Regional banks win on percentage terms: Banks under $100B get the largest percentage cut (7.8%). These banks are the backbone of small business lending and the most likely to compete directly with MCA providers and working capital lenders in local markets
Community banks may lose relatively: Better Markets, a financial reform nonprofit, warned that the proposals create "even greater competitive disadvantage" for community banks. Their argument: lowering big bank capital to "roughly equivalent to community bank levels" removes the structural advantage that smaller institutions had. They predict accelerated consolidation and reduced lending access for households and small businesses in underserved markets3
How does the Trump mortgage executive order fit in?
Five days before the Fed's announcement, President Trump signed "Promoting Access to Mortgage Credit" on March 13, directing regulators to ease mortgage lending rules for banks under $100B in assets. The order targets Dodd-Frank compliance costs, appraisal modernization (expanding alternative valuation models), and digital mortgage processing (e-signatures, e-notes, remote notarization). It also directs the CFPB to "appropriately tailor mortgage rules" for smaller banks.45
The executive order and the capital rules re-proposal are two sides of the same policy direction: reduce regulatory friction for bank lending. For alternative lenders, this means the competitive pressure is coming from both the capital side (more money to lend) and the operational side (fewer compliance barriers).
What is the macro context?
This deregulation arrives during a complex economic moment:
The Fed is holding rates at 3.5% to 3.75%, with the 2026 inflation forecast raised to 2.7%1
Private credit markets are under severe stress. Morgan Stanley projects 8% default rates. BlackRock, Cliffwater, and Carlisle have all gated fund redemptions. JPMorgan has restricted lending to private credit funds6
Bank lending growth over the past year has disproportionately gone to nonbank financial institutions and shadow banks, not Main Street borrowers, according to Better Markets3
The tension is clear: regulators are freeing bank capital at the same moment that private credit, which was supposed to be the next great lending engine, is showing structural cracks. Banks may absorb some of the deal flow that retreating private credit funds leave behind. Alternative lenders should expect to see banks bidding on deals they would not have touched 12 months ago.
What should you do this week?
Map your competitive exposure: Identify which of your current borrower segments overlap with bank lending appetites. Small business term loans under $500K and commercial real estate bridge loans under $5M are the most likely battlegrounds
Talk to your warehouse lender: If your warehouse line is funded by a bank that benefits from these capital reductions, ask about improved advance rates or expanded facility sizes. Banks with freed capital need to deploy it somewhere
Watch the 90-day comment period: The re-proposal is not final. Industry groups will push for even larger reductions. Consumer advocates will push back. The final rule could shift in either direction. Track the comment deadline (approximately mid-June 2026) and monitor for material changes
Differentiate on speed and flexibility: Banks will always be slower to underwrite and fund. The competitive moat for alternative lenders is not price; it is decisioning speed, flexible structures, and willingness to serve borrowers that banks still cannot reach regardless of capital levels
Sources
1 Federal Reserve Moves to Ease Capital Rules for Wall Street's Biggest Banks
2 ABA Banking Journal | Fed's Bowman Outlines Proposed Bank Capital Rules
3 Banking Agencies' Capital Proposals Will Boost Big Bank Profits
4 White House | Promoting Access to Mortgage Credit (Mar 13, 2026)
5 Mayer Brown | Executive Orders Aim to Promote Access to Mortgage Credit
6 CNBC | Private Credit Shakeout Matching COVID Losses Coming
7 US Regulators Unveil Plans to Cut Wall Street Capital Requirements by 4.8%
8 Banking Regulators Prepare to Loosen Post-Crisis Capital Rules
9 Executive Order Seeks to Promote Mortgage Lending
10 Wall Street Banks Stand to Gain as U.S. Proposal to Cut Capital Requirements
11 Thirteen AGs Sue Major Installment Lender Over Add-On Packing
12 Payments Dive | Affirm Outlines Options if Economic Stress Rises
13 Press Democrat | State Suspends Novato Lender's License Amid Probe
14 Bisnow | Lender Group Poised to Take Over Bankrupt Office REIT
15 Goldman Takes Minority Stake in Fintech GeoWealth for $42.5M
Our Opinion
This is the most significant shift in U.S. bank capital policy since the post-2008 Dodd-Frank era. The original Basel III endgame would have forced banks to hold 19% more capital. The new version cuts capital requirements instead. That is a 180-degree reversal.
For alternative lenders, the signal is clear: the competitive landscape is about to get more crowded at the top of the credit spectrum. Banks with freed reserves will move downmarket. The borrowers you compete for today will have more options tomorrow.
But here is what the capital rules cannot change: banks still take weeks to close. Banks still require extensive documentation. Banks still cannot serve the borrower who needs $75K by Friday. The structural advantages of alternative lending, speed, flexibility, risk appetite, remain intact. What changes is the pricing environment. Banks with more capital can afford to undercut on rate for the deals they can reach. Alternative lenders need to double down on the deals banks cannot.
The private credit stress we have been covering for weeks adds another layer. As private credit funds gate redemptions and banks restrict fund financing, the non-bank lending ecosystem is reconfiguring. Some capital sources are retreating. Bank capital is expanding. The lenders who map both dynamics, and position accordingly, will capture the displacement.
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Headlines You Don’t Want to Miss
A bipartisan coalition of 13 state attorneys general, led by New York AG James, filed suit against OneMain Financial in the Southern District of New York on March 19. According to the complaint, the nonbank installment lender allegedly packed subprime loans with single-premium credit insurance products at closing, inflating both the loan amount and total interest. Employees allegedly controlled closing screens and rushed borrowers through documents. The CFPB ordered OneMain to pay $20M in 2023 for similar alleged conduct. Several lead attorneys are former CFPB enforcement lawyers now in senior state AG positions, including one described as "the Bureau's fourth employee" who helped draft the CFPA and built a program that allegedly secured over $374M in relief. The lawsuit seeks restitution, disgorgement, and civil penalties.11
California's Department of Financial Protection and Innovation suspended Pacific Private Money's license for 30 business days on March 19. The 28-year-old Novato-based firm allegedly experienced a "severe liquidity crunch" in December 2025, leaving it without funds to continue investor distributions. More than 100 investors are reportedly affected, with some fearing roughly $100M may be at stake. The firm halted monthly distributions in October 2025 and closed its office in late February 2026. The Marin County DA is investigating. This is the firm's second license suspension; in 2014 it settled allegations of commingling $350K in investor trust funds. A cautionary signal for any lender relying on private capital pools.13
Goldman Sachs Asset Management invested $42.5M for a minority stake in GeoWealth, a Chicago-based fintech that provides portfolio analytics and client billing software for financial advisers. The deal brings GeoWealth's total funding to $79M in under five years, following an $18M round led by BlackRock in 2024 with JPMorgan participation. Goldman partner Bryon Lake joins the board. The investment extends a 2024 Goldman-GeoWealth partnership to develop new adviser products. While not a lending play, Goldman deploying capital into wealthtech infrastructure signals where the firm sees the next distribution layer for financial products, including credit.15
President Trump signed "Promoting Access to Mortgage Credit" on March 13, directing CFPB, OCC, FDIC, and the Fed to tailor mortgage rules for banks under $100B. Key provisions: expanded alternative valuation models to reduce appraisal costs, broader acceptance of e-signatures and remote online notarization, and streamlined Dodd-Frank documentation requirements. The order defines "community banks" as under $30B in assets and "smaller banks" as under $100B. Over the past two decades, statutory and regulatory changes have increased compliance costs to the point where many smaller banks have exited mortgage origination entirely. This order aims to reverse that trend.45
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