Federal Reserve and Agencies Update Regulatory Capital Standards with New Rule

The Federal Reserve, along with other regulatory agencies, has issued a significant update to regulatory capital standards. This final rule aims to alleviate disincentives for banking organizations to participate in lower-risk activities.

Overview of the Final Rule

On November 25, 2025, the regulatory agencies made modifications to certain capital standards. These changes are designed to enable banks to engage more freely in U.S. Treasury markets, encouraging lower-risk behavior. The finalized version retains much of the original proposal introduced in June but includes adjustments specific to depository institutions.

Main Features of the New Rule

• The rule modifies leverage capital standards for major banking organizations.
• It serves as a backstop to existing risk-based capital requirements.
• The regulation considers each organization’s systemic risk profile.

Capped Standards for Depository Institutions

A notable change is the introduction of a cap on the enhanced supplementary leverage ratio standard for depository institutions, set at one percent. Overall, the leverage requirement will not exceed four percent for these entities. This adjustment reflects the varying capital requirements and systemic risk profiles of bank holding companies relative to their subsidiaries.

Impact and Implementation

The agencies project that the overall capital levels in the banking sector will remain stable, resulting in minor reductions. Specifically, the new rule is expected to lower Tier 1 capital requirements for affected bank holding companies by less than two percent. For depository institutions, capital reductions may be more pronounced, but these funds are generally restricted from being disbursed to shareholders due to holding company regulations.

Effective Dates

The final rule is set to take effect on April 1, 2026. Banking organizations may begin adopting the revised standards starting January 1, 2026.

Conclusion

This joint effort by the Federal Reserve and other regulatory bodies reflects a commitment to adaptive financial governance. The emphasis on supporting lower-risk banking activities is expected to bolster the resilience of the financial system while maintaining necessary regulatory oversight.