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June 1, 2026

Contributors: Alicia Prichard, Kristy Clark, CPA, CIA

On March 19, 2026, federal banking regulators issued the Basel III Endgame package, which comprises three coordinated proposals designed to modernize the regulatory capital framework for banking organizations. These proposals aim to recalibrate a regulatory capital framework that’s been evolving since the 2008 global financial crisis. Ìý

Because regulators explicitly designed theÌýframeworkÌýto target large, complex institutions,ÌýmanyÌýsmallerÌýregional and community banks areÌýexempt from the Basel Endgame mandates.ÌýÌý

However, the new capital restrictionsÌýcouldÌýgive smaller banks a competitive edge, enabling them toÌýmaintainÌýlower capital cushions and deploy more money into local community lending than their larger competitors.Ìý±á±ð°ù±ð’sÌýwhat your institutionÌýneedsÌýtoÌýknowÌýabout Basel Endgame.Ìý

Basel III’s OverallÌýImpactÌýon BankingÌý

TheÌýthreeÌýproposalsÌýthat make up the Basel III Endgame, along withÌýrecent revisions to the capital stress-testing framework,Ìýare expected toÌýreduce capital requirementsÌýacross theÌýbanking sector.ÌýThe Federal Reserve Board projects that these changes willÌýimpactÌýcommon equity tier 1 capital (CET1) requirements by the following percentages:Ìý

Category I & II Firms	Category III-IV Firms	Banks with \$10B – \$100B in assets
-4.8%	-5.2%	-7.8%

Inside Endgame’s ProposalsÌý

Each proposal differs fundamentally inÌýreach and intent, targeting specific tiers of banks while aiming to achieve distinct regulatory goals.Ìý±á±ð°ù±ð’sÌýa breakdown ofÌýthe scope and reach ofÌýeach proposal within the Basel Endgame framework:Ìý

Proposal	Summary	Expected Impact on Smaller Regional Banks (<\$10 billion in assets)
Expanded Risk-based Approach Proposal (Regulatory Capital Rule: Category I and II Banking Organizations, Banking Organizations with Significant Trading Activity, and Optional Adoption for Other Banking Organizations)	Revises the risk-based capital framework applicable to Category I & II firms, as well as firms with significant trading activity. Replaces dual sets of calculations with a single expanded risk-based approach (ERBA). Introduces additional credit risk factors, plus new operational and market-risk frameworks for calculating risk-weighted assets. Reduces risk weights and replaces current mortgage asset risk weights with more sensitive weights based on loan-to-value (LTV).	None.
Standardized Approach Proposal (Regulatory Capital Rule: Regulatory Capital and Standardized Approach for Risk-Weighted Assets)	Revises the standardized approach used by all banks that do not use the ERBA or Community Bank Leverage Ratio (CBLR) frameworks. Introduces LTV buckets for mortgage assets. Reduces risk weights for corporate exposures and certain other assets (not otherwise assigned). Removes the threshold-based capital deduction for mortgage servicing assets (MSAs). Requires institutions to recognize elements of accumulated other comprehensive income (AOCI) in regulatory capital, subject to a five-year phase-in period.	Applies to institutions with less than \$10 billion in assets that have not opted into the CBLR framework. The removal of the threshold-based capital deduction for MSAs will also apply to the calculation of CET1 under CBLR, impacting smaller banks engaged in significant mortgage servicing activities. The AOCI change only applies to Category III-IV firms (those with greater than \$100 billion in assets).
Global Systemically Important Bank (GSIB) Surcharge Proposal (Regulatory Capital Rule (Regulation Q): Risk-Based Capital Surcharges for GSIB Holding Companies; Systemic Risk Report (FR Y-15))	Applies only to systemically important (global) bank holding companies. Revises the measurement of systemic risk and calculation of risk-based capital surcharges for these institutions.	None.

Implications for Smaller Regional BanksÌý

If your bank measuresÌýcapital adequacy under the CBLR framework, these proposalsÌýare not likely toÌýhave a direct impact.ÌýHowever, forÌýCBLR banks that engage in mortgage servicing activities,Ìýthe Standardized Approach Proposal removes the MSA deduction from capital. ThisÌýchangeÌýisÌýexpected toÌýbenefitÌýbanks with significant MSAs, even ifÌýthey’reÌýreporting under the CBLR framework.Ìý

If yourÌýsmaller regionalÌýbankÌýhas not opted into CBLR, the Standardized Approach ProposalÌýis expected to provideÌýmoderateÌýcapital relief, primarily through lowerÌýrisk-weighted assetsÌý(RWAs), whileÌýmaintainingÌýa simple framework.ÌýSmaller regional banks using this frameworkÌýwillÌýespeciallyÌýbenefitÌýfrom the lower RWAs without the offsetting effectÌýof any AOCI inclusion requirement.ÌýÌý

That means banksÌýthat areÌýmore heavily engaged in mortgage activitiesÌýare expected to see the greatest capital relief due to the more granular risk weightsÌýbased onÌýLTVÌýand removal of the MSA capital deduction.ÌýÌý

TheÌýBasel Endgame ProposalsÌýoffer an opportunity to modelÌýprojected capital ratios underÌýbothÌýtheÌýCBLR and Standardized Approach frameworks. While the estimated net benefitÌýforÌýaÌýbank using the Standardized ApproachÌýis a 7.8% reductionÌýin CET1,Ìýactual relief will vary significantly based on yourÌýinstitution’sÌýspecificÌýasset mix.ÌýBanksÌýshould alsoÌýconsiderÌýrecent adjustments to the CBLRÌýframework (most notablyÌýtheÌýlowered 8% threshold effective July 2026).Ìý

Your Takeaway
These proposals,Ìýalong withÌýothers recently issued,Ìýcontinue toÌýmodernize rulesÌýandÌýprovide relief for traditional lending activitiesÌýwhile preservingÌýsafety and prioritizing simplicity.ÌýLower effective capitalÌýrequirementsÌýcould allowÌýforÌýgreaterÌýinvestmentÌýinÌýnewÌýtechnologies,ÌýincreasedÌýlending capacity,ÌýandÌýincreasedÌýcompetitionÌýthroughoutÌýthe industry.ÌýAmidÌýeasingÌýcapital requirements,Ìýthose charged with governance of banking institutionsÌýcontinue to play a critical fiduciary role in managing riskÌýand areÌýincreasinglyÌýempoweredÌýto exercise strategic flexibility.ÌýÌý

Shifting rules offer unique opportunities — if you have the right strategy.Ìý²ÝÝ®ÊÓƵ can help your institution move from compliance to competitive advantage. ContactÌýourÌýfinancial institutions specialistsÌýtoday to:Ìý

• Build your regulatory compliance roadmap:ÌýWe ensure your reporting systems are fully prepared for upcoming implementation dates without disrupting daily operations.Ìý

• Answer your broader banking questions:ÌýOur team is here to guide you through any regulatory compliance or general banking topicsÌýimpactingÌýyour growth.Ìý

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FAQsÌý

Q:ÌýWhenÌýare these proposals expected to be implemented?Ìý

A: TheÌýproposed rule has not yet beenÌýfinalized,ÌýandÌýan implementation dateÌýhas not yetÌýbeen specified. All three proposalsÌýshare a June 18, 2026,Ìýcomment period deadline.ÌýPreviousÌýstatements made byÌýregulatorsÌýhave led the industry to expectÌýa final rule by late 2026ÌýwithÌýpotentialÌýimplementationÌýin 2027.Ìý

Q:ÌýAre there any impacts to theÌýCommunity Bank Leverage Ratio (CBLR)ÌýframeworkÌýwhichÌýresultÌýfrom theseÌýproposals?Ìý

A:ÌýFor community banks that electÌýto opt into the CBLR framework, the direct impacts of these proposals areÌýveryÌýlimited, unlike recentÌýrule changesÌýdirectedÌýspecificallyÌýtoward CLBRÌý(e.g., theÌýreductionÌýof theÌýCBLR requirement fromÌý>9% to >8%ÌýforÌýTier 1 capital to average total consolidated assets, effective July 1, 2026).ÌýFor community banks thatÌýengage inÌýsignificantÌýmortgage bankingÌýactivities, however,ÌýitÌýisÌýimportant to note thatÌýtheseÌýproposalsÌýcouldÌýremove the threshold-based deduction for mortgage servicing right assets (MSAs)ÌýfromÌýCommon Equity Tier 1 (CET1)Ìýmeasures, even under the CBLR framework.Ìý