BPInsights: March 14, 2026

Bowman Previews Basel Proposal

Federal Reserve Vice Chair for Supervision Michelle Bowman previewed the forthcoming Basel capital proposal in a speech and Q&A on Thursday at the Cato Institute. The proposal will build on the 2017 Basel agreement "while incorporating targeted adjustments to reflect U.S.-specific aspects of banking and financial markets," Bowman said. A key feature of the proposal is "the elimination of duplicative capital calculations for the largest banks," she explained: Large banks currently must maintain two sets of risk-based capital ratios-one using the standardized approach and another using internal model-based advanced approaches. The proposal establishes a single approach to calculate the risk-based capital requirements for these banks.

• Credit Risk. The revised proposal recognizes loan-to-value ratios in mortgage capital requirements and reflects repayment history in retail lending, Bowman said. "Importantly, it does not add new capital penalties for mortgages or consumer lending and seeks public feedback on the appropriate role of private mortgage insurance. The proposal also differentiates requirements based on the credit quality of businesses, ensuring that capital treatment is aligned with risk."
• Operational Risk. The proposal tailors operational risk capital requirements for U.S. banks, accounting for fee-based revenue and expenses on a net basis. The Fed staff's economic analysis shows that activities like wealth management and custody services have exhibited lower levels of operational risk historically and the proposed requirements take this into account.
• Market Risk. The proposal strengthens capital requirements for banks' trading activities "in a manner calibrated to unique U.S. capital markets," Bowman said. "Relative to the Basel standard, the proposal better recognizes diversification across positions and extends the use of bank internal models where data are sufficiently robust, ensuring capital requirements are commensurate with risk."
• Big Picture. "We expect the Basel III proposal to result in a small increase in requirements for the largest banks, similar to what is expected in the UK. The G-SIB surcharge proposal would result in a modest decrease in the surcharges, which addresses the recent increases in this requirement that deviated from risk. Together, these proposals would decrease the requirements by a small amount. These changes should be viewed as part of a broad, careful review of capital requirements undertaken over the past nine months. We have carefully considered the overlaps between Basel III and stress testing to ensure that, when combined, capital requirements appropriately capture risk rather than being overly punitive. The resulting cumulative effect on the largest banks' capital requirements is modest." Bowman mentioned the context of recent capital rule and accounting standard changes significantly increasing requirements for large U.S. banks, and said the capital proposals including the 2025 stress test changes "maintain capital requirements above the 2019 rules."
• Legacy Standardized Approach Proposal. The package will also include a legacy standardized approach proposal, which will remove any requirement to deduct mortgage servicing assets from regulatory capital; assign a 250 percent risk weight to these assets while seeking public feedback about the appropriate risk weight; and address critical categories of bank lending, including mortgages and consumer lending, to moderately reduce requirements and align the standardized approach with the Basel III proposal, ensuring greater consistency and a level playing field among all banks.
• GSIB Surcharge. Another element is a proposal that will update the coefficients that determine the impact of banks' activities on the GSIB surcharge and "realign[s]" the U.S. surcharge with the international method. To ensure that surcharges do not unintentionally increase, the proposal indexes the surcharge to economic growth going forward.
• Broader Context. Bowman emphasized the need to eliminate duplicative charges in the overall capital framework, consider the cumulative impact of different capital requirements and ensure that banking activities do not migrate out of the regulated system. "A lot of the activity that used to occur within the regulated banking space has been pushed out based on regulatory preferences or the calibration of activities outside that space," Bowman said during the Q&A session. "This proposal will work to reverse some of that trend and allow for better risk weighting of those activities to bring them back in. Mortgages in particular are one of those areas. "
• BPI, Joint Trades Response. BPI, the American Bankers Association and Financial Services Forum responded to the speech in a statement here.

Five Key Things

1. Alsobrooks Calls for Compromise on Stablecoin Yield

Sen. Angela Alsobrooks (D-MD), a member of the Banking Committee, called this week for a compromise on stablecoin yield payments in crypto market structure legislation. She has been working with Sen. Thom Tillis (R-NC) on compromise language that aims to safeguard against deposit flight while promoting innovation. The GENIUS Act left open the possibility of stablecoin issuers paying yield or interest indirectly through exchanges and affiliates, and Senators have been debating how to address the issue of exchanges and other intermediaries paying interest or yield while potentially allowing for other reward or incentive payments. Alsobrooks, at the American Bankers Association Washington Summit this week, stressed the need for cooperation: "We should not let perfect be the enemy of good," she said. "All of us will probably walk away just a little bit unhappy." She also said that "Making sure that we are not allowing bank-like products without bank-like protections is what we know is really important."

2. Supervision, Master Accounts, Fraud: Bowman Q&A Highlights

Federal Reserve Vice Chair for Supervision Michelle Bowman this week discussed key regulatory priorities in a Q&A at the American Bankers Association conference. In addition to previewing Basel, which Bowman outlined in further detail during her Thursday speech at Cato, here are several highlights:   

• Liquidity. The Fed's bank liquidity framework should support "the direction of a smaller balance sheet," Bowman said. Policymakers are also focused on improving the design of the Fed's discount window. Much of the discussion about liquidity rule revamps "focuses on the discount window," she said.
• M&A. Bowman said the Fed is working on an "HHI proposal" - referring to the Herfindahl-Hirschman Index, a measure of market concentration - to evaluate competitive factors in bank merger applications.
• Fraud. Fraud is a big issue, and the Fed only has a small purview in that area, Bowman said. "The problem is that this is a very broad issue. It affects well beyond the Federal Reserve and the prudential regulators … working together with a comprehensive effort is going to be critical in being able to address this," she said.
• Supervision. Bowman also discussed the Fed's ongoing efforts to reform supervision, a major priority on her agenda. "As a part of that, what we've been doing is relooking at MRAs and MRIAs and enforcement actions to make sure that they're in compliance with the supervisory operating principles that we published last October, to be clear in the language, to very, very directly articulate what the issue is … in these types of citations, and then ensuring that you understand the path and how long it might take for you to be able to mitigate those circumstances," she said.
• Master Accounts. In response to a question about the recent Kraken "limited purpose" master account approval, Bowman described the process for master account access and approval and the tiered levels for account access. "As the financial system has evolved, we've had to think more about whether or not there needs to be a path for nonbank financial institutions to be a part of the master account system and to be able to access that," Bowman said. "And that's why we published an RFI earlier this year." She described the Kansas City Fed's approval of the Kraken application as a pilot program. "The way that Kansas City approached approving that application was on a limited basis for a very narrow opportunity for access, and on a certain time frame. I kind of think about that as a pilot. It's only accessible for this one institution, and so I think that's how we're trying to learn from that experience to understand how we should think about the RFI that we published, and how that could feed into whatever decisions might be made later in the year. But that's probably something you would want to talk to Governor Waller a little bit more with."

3. FDIC to Propose Barring Stablecoin Access to Pass-Through Insurance

The FDIC plans to propose making payment stablecoins ineligible for pass-through insurance, which allows fintechs and other nonbanks to treat the accounts they hold at banks for the behalf of customers as those customers' funds and therefore eligible for deposit insurance. "Treating stablecoin holders as the insured depositors, even on a pass-through basis, seems inconsistent with the GENIUS Act's prohibition on payment stablecoins being 'subject to Federal deposit insurance,'" FDIC Chairman Travis Hill said at the American Bankers Association conference this week. Hill's remarks come amid policy debates on how much access crypto firms should have to the banking system.

4. Post-Crisis Government Litigation Led to a Decline in Low-Income Mortgage Lending

A series of lawsuits filed by the U.S. Department of Justice starting in 2011 accused mortgage lenders of fraud related to loans insured by the Federal Housing Administration. Ultimately, 31 large mortgage lenders paid over $5 billion to the federal government to settle these claims. A forthcoming peer-reviewed academic paper by BPI Head of Research Scott Frame, Kristopher Gerardi, Erik Mayer, Billy Xu and Lawrence Zhao examines the effect of these settlements on the quantity and quality of FHA mortgage lending in subsequent years. The authors find that the litigation resulted in many large banks exiting the FHA program, resulting in a significant decline in this lending with no change in risk profiles. Importantly, these developments are found to have driven the overall decline in mortgage lending to lower-income borrowers during this period.

5. The Crypto Ledger

Here's what's new in crypto.

• Iran's Use of Binance Draws DOJ Sanctions Evasion Probe. The U.S. Department of Justice is investigating allegations that Iran used Binance to evade U.S. sanctions. The probe follows the crypto exchange's internal investigation into more than $1 billion flowing through the platform to a network funding Iran-backed terrorist groups, according to the Wall Street Journal. "The Wall Street Journal couldn't determine whether the Justice Department is investigating Binance itself for potential misconduct, or solely the customers on its platform," the article said.
• CRS Report on Stablecoin Yield. The Congressional Research Service released a recent report on the issue of stablecoin yield, a central point of debate in crypto market structure legislation. The report lays out the costs and benefits of yield, including the risks of deposit flight. "A belief that stablecoins will be bailed out may lead to a greater migration from deposits to stablecoins. By banning yield, the stablecoin market will grow more slowly and bank funding will be more stable, potentially limiting improvements to retail payments as well as reducing systemic risk," the report said. "The GENIUS Act included provisions to protect consumers and mitigate systemic risk, but those provisions do not entirely eliminate those risks, and the effectiveness of stablecoin regulation-notably, state regulation-is untested." The report explains recent developments in the legislative debate over yield prohibition and industry stakeholders' reactions to those developments.
• Treasury Digital Asset Report. As part of the implementation of the GENIUS Act, the Treasury Department issued a report to Congress on innovative technology to counter illicit finance involving digital assets. The report offers recommendations on artificial intelligence, digital identity, decentralized finance and other topics. Its "overarching principles" include: Promoting responsible innovation in AML/CFT; collaborating with key stakeholders, including banking agency examiners, on emerging technologies; and coordinating and harmonizing requirements.

In Case You Missed It

Traversing the Pond

Here's what's new in international banking policy.

• Revolut Obtains UK Banking License. Fintech platform Revolut has secured a full banking license in the UK, ending a four-year waiting process, according to the Financial Times. The Prudential Regulation Authority has lifted restrictions on an authorization that it granted two years ago. The fintech is currently also applying for a U.S. banking charter.
• ECB Unveils CBDC Roadmap. The ECB is pushing ahead in pursuit of a digital euro, this week unveiling a roadmap to enable settling distributed ledger technology transactions using central bank money. The Appia initiative aims to "shape the development of a European tokenised financial ecosystem in which central bank money continues to play a central role," according to a press release. The Appia roadmap is part of a broader ECB plan, which includes Pontes, a bridge between tokenized financial markets and the existing infrastructure enabling settlement in tokenized central bank money while maintaining legal finality in T2. The ECB last week held a focus session on the implementation of this project.
• FSB Evaluates Cross-Border Payments Progress. The Financial Stability Board held a Cross-Border Payments Summit recently to evaluate efforts to make cross-border payments cheaper, faster, more transparent and more accessible. The Bank of England hosted the event, which convened senior policymakers and industry leaders.
• GHOS Takes Stock of Basel Implementation. The Governors and Heads of Supervision, the oversight committee for the Basel Committee on Banking Supervision, met on March 9, discussing Basel III implementation progress and endorsing targeted reviews of the BCBS prudential standards for cryptoassets and GSIBs. On Basel implementation, "Members continue to make good progress with implementation. About 75% of member jurisdictions have now implemented, or will shortly implement, the standards, and the remaining jurisdictions have communicated their plans to do so."

What to Watch Next Week

• The Federal Reserve Board meets to vote on the Basel proposal on March 19.
• The House Financial Services Committee holds a hearing on March 17 on updating the financial privacy framework.

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Member News

Pentagon Builds New Investment Banking Team for Defense Deals Investment

The U.S. Department of Defense is recruiting investment bankers as it seeks an investment of $200 billion over three years in defense deals, according to Semafor reporting this week. The investment drive, aimed at countering China's rise, is targeting Goldman Sachs, Morgan Stanley, JPMorgan and Bank of America as it seeks staff for "not a career move, but a two- to three-year secondment program" to support American economic growth and security.

Upcoming Events

• 3/17/2026: House Financial Services Committee Hearing: Updating America's Financial Privacy Framework for the 21st Century
• 3/17/2026-3/18/2026: FOMC Meeting
• 3/18/2026: HFSC Task Force on Monetary Policy, Treasury Market Resilience and Economic Prosperity Hearing: "Revisiting the Treasury-Fed Accord" 
• 3/18/2026: Exchequer Club Luncheon with Sen. Mike Rounds (R-SD)
• 3/25/2026: HFSC Hearing: Tokenization and the Future of Securities: Modernizing Our Capital Markets
• 3/26/2026: HFSC Digital Assets, Financial Technology and Artificial Intelligence Subcommittee Hearing: "Innovation at the Speed of Markets: How Regulators Keep Pace with Technology"