Monthly LRA Update: December 2025

REGULATORY DEVELOPMENT

Basel III Endgame – Update

As covered in a previous LRA Update, there has been reporting that the federal banking regulators are planning to revisit the previously proposed capital rules referred to as Basel III Endgame. The re-proposal is expected to include lower aggregate capital increases compared to the original proposal.

The banking industry has largely been in favor of a re-proposal of Basel III Endgame. On December 11, the House Financial Services Subcommittee on Financial Institutions held a hearing titled “Right-Sizing the U.S. Capital Framework: A Return to Tailoring, Economic Growth, and Competitiveness.” The stated purpose of the hearing was to “outline the U.S. bank capital framework, assess how regulatory capital requirements affect financial institutions of various sizes, and advocate for a more transparent and risk-aligned capital regime.”

In his opening remarks, Subcommittee Chair Andy Barr (R-KY) stated that “the Biden Administration’s initial Basel III Endgame proposal was deeply flawed and received bipartisan criticism. It threatened to elevate capital burdens so far above international norms that entire categories of banking business lines, from residential mortgages to market-making, could have migrated to offshore institutions. Fortunately, the bipartisan message was clear: the Basel III Endgame must be reproposed. And that re-proposal is not just an opportunity, but a responsibility to get this right.”

Subcommittee members expressed support for a re-proposal of Basel III Endgame. Representative Roger Williams (R-TX) stated that “the previous Basel III endgame proposal would have pushed capital standards well beyond what a strong and stable banking system requires.” Witnesses also provided testimony in support of re-proposed Basel III Endgame. Amanda Eversole (President and CEO, Financial Services Forum) testified that “regulators should expeditiously move ahead with [Basel III Endgame] in a manner that is consistent with the global regulatory agreement and does not seek to artificially raise capital requirements for large banks.”

Separately, Republican members of the House Committee on Financial Services sent a letter to the FRB, FDIC, and OCC on December 19 expressing their views on the expected re-proposal of Basel III Endgame (emphasis added):

First and foremost, we want to emphasize the real world impacts that this [Basel III Endgame] proposal will have on individuals, businesses, and the entire U.S. economy. If inappropriately calibrated, excessive levels of required regulatory capital and the associated need for banks to direct available capital to the most productive risk-adjusted uses will likely lead to increased mortgage costs for homeowners, less business investment, tighter margins for farmers with associated increases in the cost of food, and overall lower economic growth and reduced economic wellbeing. The bank regulatory capital framework does not exist in a vacuum—it has spillover effects on the wider economy and everyone within it. A safe and sound banking system is a key pillar of the economy, but we must not forget that the point of prudential regulation is to maintain its safety and soundness so that the banking system can continue to be a powerful engine of economic progress. Regulation for the sake of regulation is not effective or prudent.

[…]

The proposal must also account for the already existing framework of bank regulatory capital in the U.S. Given the work on the bank regulatory capital structure that your agencies have already undertaken, it is imperative that the proposal be rationally fitted to integrate with existing bank capital regulations in a manner that does not result in overlapping and duplicative requirements. Failure to do so would likely result in unnecessarily high capital requirements with the downstream effect of reduced credit availability to broad swathes of the U.S. economy. To avoid this outcome, we ask you and your agencies to continue to view the bank regulatory capital framework in a comprehensive manner that does not double-count risks in one part of the framework that have already been accounted for by another.

We will continue to monitor for a formal re-proposal of Basel III Endgame from the federal regulators.

LISCC Program Operating Manual Published by FRB

On December 18 the Federal Reserve Board announced its publication of the Large Institution Supervision Coordinating Committee (LISCC) operating manual. The stated purpose of the manual is to formally set “expectations and standards for Large Institution Supervision Coordinating Committee (LISCC) Program supervisory examination activities.”

The manual defines the LISCC Program, noting the inclusion of five various portfolio programs: Capital, Governance and Controls, Liquidity, Recovery and Resolution, and Monitoring and Analysis. While the manual does not specially cover oversight of BOLI, these various portfolio programs can also apply to management of BOLI programs.

The manual also covers the Supervisory Program Cycle and Execution in depth, with phases including preparation, execution, conclusion, and follow-up/remediation. Additionally, the manual spells out various oversight metrics and controls, including quality control, quality assurance, and information security.

This is the first of several manuals expected to be published by the FRB in the coming months. Additionally, the FRB expects to release an updated version of this manual that will reflect the statement of supervisory operating principles released in November, as well as to reflect the name change of the program from LISCC to GSIB.