Monthly LRA Update: October 2025

REGULATORY DEVELOPMENTS

Basel III Endgame – Update

In October it was reported that the Federal Reserve is planning to revisit the previously proposed capital rules commonly referred to as Basel III Endgame. As we reported in our July 2024 and September 2024 LRA Updates, certain leadership at the FDIC and FRB had already recommended that Basel III Endgame receive a re-proposal.

It is speculated that the new proposal will include a reduction in the aggregate capital increases compared to the original proposal, down to the 3-7% range from current capital requirements.

The new proposal is expected to be released in 2026, and potentially as early as Q1.

As a related item, the Basel Committee on Banking Supervision recently released its Basel III Monitoring Report. Highlights of the report, which is based on 2024 year-end data, include that the Common Equity Tier 1 (CET1) ratio for Group 1 banks increased to 14% (up from 13.4% as of June 2024).

Regulators Issue Notice of Proposed Rulemaking to Codify Elimination of Use of Reputation Risk

On October 7 the OCC and FDIC jointly issued a notice of proposed rulemaking that would codify the elimination of reputation risk from supervisory guidance.

The proposal states that regulators believe that the “use of the concept of reputation risk as a basis for supervisory criticisms increases subjectivity in banking supervision without adding material value from a safety and soundness perspective.” The proposal contrasts that liquidity risk and credit risk “are more concrete and measurable and allow examiners to more objectively assess a banking institution’s financial condition.”

Comments on the proposal are due by December 29, 2025.

This proposed rulemaking follows and is consistent with a recent executive order (covered in our September 2025 LRA Update) that directs each banking regulator to remove the use of reputation risk from its guidance. While BOLI is subject to supervisory guidance under OCC Bulletin 2004-56, it is unclear if regulators will take specific action in restating or amending OCC 2004-56.