Basel III Endgame Nears Finish Line, But Industry Groups…

After nearly three years of industry lobbying, regulatory revisions, quantitative studies, and political debate, the U.S. Basel III Endgame framework is entering what may be its final phase.

June 18 marked the deadline for comments on the Federal Reserve’s revised Basel III proposal, prompting a coordinated response from some of the financial industry’s most influential trade groups. The International Swaps and Derivatives Association, the Securities Industry and Financial Markets Association, the Institute of International Finance, and the Futures Industry Association all submitted letters broadly supporting the direction regulators have taken while urging further refinements before the rules are finalized.

The tone differs sharply from the industry’s reaction to the original 2023 Basel III Endgame proposal, which triggered fierce opposition from banks, dealers, exchanges, and clearing firms. Rather than calling for a wholesale rethink, the latest letters acknowledge that regulators have addressed many of the industry’s concerns. The remaining debate centers on a narrower question: whether the final framework accurately measures economic risk or continues to overstate exposures in key trading and clearing activities.

The outcome will influence capital requirements, Treasury market liquidity, derivatives clearing, client hedging costs, and the economics of market-making for years to come.

From A 20% Capital Increase To A More Measured Framework

The Basel III Endgame debate began in 2023 when U.S. regulators proposed sweeping revisions to bank capital requirements following a series of regional bank failures and ongoing international efforts to complete post-crisis banking reforms.

The original proposal was widely criticized across Wall Street. Banks argued that the framework significantly overstated risk, duplicated existing safeguards, and would force institutions to hold substantially more capital against trading, lending, and market activities.

That criticism appears to have had an effect.

When regulators unveiled a revised proposal in March 2026, they estimated the new framework would reduce large-bank capital requirements by approximately 4.8% compared with current requirements, a dramatic shift from the direction envisioned under the original proposal.

The revised framework also eliminates several features that banks considered unnecessarily punitive, streamlines capital calculations, and introduces more risk-sensitive treatment across multiple exposure categories.

According to Reuters, large banking organizations estimate that the combined effect of proposed changes to Basel III, stress testing, and G-SIB surcharge calculations could reduce capital requirements by approximately $22 billion across the largest U.S. institutions.

That progress explains why industry groups are no longer fighting the framework itself. Their focus has shifted toward specific technical areas that they believe still misrepresent economic risk.

ISDA Says Market Risk Capital Has Improved Dramatically

One of the most detailed analyses came from ISDA.

In its latest quantitative impact study, conducted using data from the eight U.S. global systemically important banks, ISDA found regulators have significantly reduced the projected impact of the Fundamental Review of the Trading Book, commonly known as FRTB.

According to ISDA, the original proposal would have increased market risk capital by between 73% and 101%, depending on whether banks used internal models or standardized calculations.

The revised proposal substantially reduced those figures.

Under the FRTB standardized approach, the projected increase fell from 101% to 89%. Under the internal models approach, the projected increase dropped from 73% to 30%.

ISDA described the changes as a significant improvement and credited regulators for increasing the viability of internal models, a long-standing priority for the derivatives industry.

The organization nevertheless argues that several components of the framework remain insufficiently risk-sensitive.

Its primary concern involves cross-product netting under the standardized approach for counterparty credit risk. ISDA believes the proposal still overstates risk by failing to fully recognize offsets between derivatives and financing transactions such as repos. The association has proposed a hedge coverage ratio that would better align capital requirements with actual portfolio risk.

Why Treasury Market Liquidity Has Become Central To The Debate

The industry’s concerns extend beyond bank profitability.

One reason Basel III has attracted such intense attention is its potential effect on liquidity in the U.S. Treasury market, the foundation of global fixed-income trading and collateral management.

In their joint submission, ISDA, SIFMA, and the IIF argue that capital requirements directly influence the pricing and availability of market intermediation, client financing, hedging services, and liquidity provision. They contend that more risk-sensitive rules support deeper and more efficient markets while reducing costs for end users.

The groups warn that certain elements of the current proposal could still discourage market-making activity and reduce dealer capacity during periods of market stress.

The issue has become prominent enough that the Financial Times reported industry groups are specifically warning regulators about potential consequences for Treasury market liquidity.

For policymakers, the challenge is balancing financial resilience with market efficiency. Capital requirements that are too low can increase systemic risk. Requirements that are too high can reduce the willingness of banks to provide liquidity and absorb client flows during volatile periods.

FIA Focuses On Clearing Incentives

While ISDA’s concerns largely focus on trading activities, FIA’s submission centers on a different issue: central clearing.

The association broadly supports the revised Basel III framework and says regulators have made meaningful progress in recognizing the role clearing plays in reducing systemic risk. FIA specifically welcomed the exclusion of client-facing derivative exposures from the Credit Valuation Adjustment framework, recognition of netting arrangements, and the introduction of cross-product netting concepts.

FIA also praised changes to the Federal Reserve’s proposal governing capital surcharges for U.S. global systemically important banks.

According to FIA, those changes represent an important step toward preventing bank capital rules from discouraging central clearing.

That concern is rooted in one of the core lessons of the 2008 financial crisis.

Post-crisis reforms pushed a growing share of derivatives activity into central counterparties, commonly known as CCPs, where clearing houses manage risk through margin requirements, default funds, and daily settlement processes. Regulators have consistently promoted central clearing as a mechanism for reducing systemic risk.

FIA argues capital requirements should reinforce that objective rather than undermine it.

Jacqueline Mesa, FIA’s Chief Operating Officer and Senior Vice President of Global Policy, said regulators appropriately recognize the importance of central clearing but should go further in recognizing risk offsets across related positions. FIA believes measuring exposures on a gross basis can exaggerate risk and distort the economics of client clearing businesses.

The association is seeking additional revisions to cross-product netting methodologies, cross-margining treatment, G-SIB surcharge calculations, and operational requirements governing cleared transactions.

The Final Phase Of Basel III Endgame

The broader significance of the June 18 comment deadline is that it may represent the final major consultation stage before regulators begin drafting a final rule.

Unlike previous rounds of feedback, industry groups are no longer attempting to stop the framework.

Instead, they are making targeted requests focused on market risk calculations, clearing incentives, Treasury market liquidity, derivatives netting, and G-SIB surcharge calibration.

That shift reflects how much the proposal has changed since 2023.

Regulators have already softened several provisions, reduced projected capital impacts, simplified calculations, and introduced more risk-sensitive treatment in multiple areas. The debate has moved from whether Basel III Endgame should proceed to how precisely it should be calibrated.

The remaining disagreements may appear technical, but they affect some of the largest and most important financial markets in the world. The final rules will influence the economics of trading, market-making, repo financing, derivatives clearing, Treasury market liquidity, and client hedging activity across the U.S. financial system.

After years of revisions and negotiations, even many of the industry’s most vocal critics now describe the framework as a credible foundation. The final question is whether regulators will make one last round of adjustments before bringing one of the most consequential post-crisis capital reforms to a close.