What Is the Basel III Endgame? Covered Banks, Risk Weights, and G-SIB Surcharge

The Basel III Endgame is the final round of post-financial-crisis capital rules for the largest U.S. banks, and in its current form it is far narrower than the version regulators first floated. The Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency published an initial proposal in July 2023, then issued a substantially revised set of three proposals on March 19, 2026 after heavy industry pushback.¹ The comment period on those proposals closes June 18, 2026, so nothing is final yet. The agencies estimate that, in aggregate, the proposals would modestly decrease capital requirements for large banks and moderately decrease them for smaller banks.

Which Banks Are Covered

The 2026 re-proposal sorts banks into three groups based on how much of the framework applies to them.

Banks with $700 billion or more in assets, which in practice means the handful of U.S. firms in regulatory Categories I and II, face the full Expanded Risk-Based Approach. That includes detailed credit-risk weights, the new operational-risk framework, the Fundamental Review of the Trading Book for market risk, and the revised Credit Valuation Adjustment framework. This group consists of roughly eight U.S. Global Systemically Important Banks.¹

Banks between roughly $100 billion and $700 billion in assets (Categories III and IV) get updated standardized risk weights for credit exposures but are generally exempt from the new operational-risk, market-risk, and CVA frameworks. They are still required to reflect unrealized gains and losses on certain securities in their regulatory capital, subject to a transition period.

Community banks under $100 billion are not covered. They continue to operate under existing standardized capital rules, including the community bank leverage ratio framework for those that elect it.

Any bank below $700 billion can voluntarily opt into the full Expanded Risk-Based Approach. That flexibility matters for firms that compete with the largest banks in specific business lines and would prefer the more risk-sensitive framework.

What Changed Between the 2023 and 2026 Versions

Most public commentary about the “Basel III Endgame” still describes the 2023 text, so it is worth understanding how the current proposal differs.

The original July 2023 proposal applied the full suite of reforms to every bank with $100 billion or more in total assets.² Dozens of large regional banks would have faced the same complex credit-risk, operational-risk, and market-risk calculations as JPMorgan Chase and Goldman Sachs. The banking industry argued this was disproportionate, and the regional bank stress of spring 2023 gave regulators reason to revisit the approach.

The March 2026 re-proposal splits the framework into two separate proposals with a much higher dividing line at $700 billion. The second, simpler proposal covers banks below that threshold, updating their standardized risk weights without layering on the full operational-risk and market-risk overhaul.

The 2026 version also eliminates the requirement for Category III and IV banks to run two parallel sets of risk-weighted asset calculations. The original “dual stack” approach would have forced these banks to compute capital under both the standardized and expanded methods and take the higher number. The re-proposal uses a single-stack approach, which significantly reduces the compliance burden for mid-size institutions.

One connected change: the international Basel framework includes an “output floor” that prevents banks using internal models from calculating risk-weighted assets below 72.5 percent of what the standardized approach would produce. The 2023 U.S. proposal included a version of this floor through the dual-stack structure. By moving to a single-stack approach, the 2026 re-proposal effectively drops the mandatory output floor as an independent constraint in the U.S. Internationally, the 72.5 percent floor is still scheduled to reach full calibration in January 2028 for jurisdictions that have adopted it.

How Credit Risk Weights Work Under the New Framework

Credit risk is where most banks will feel the Endgame day to day. The 2026 re-proposal introduces more granular risk weights tied to the actual characteristics of each loan, replacing the current system where broad categories of loans receive a flat weight regardless of quality.

Residential Mortgages

Mortgage risk weights are calibrated by loan-to-value ratio rather than assigned a blanket 50 percent weight. For a standard owner-occupied mortgage where repayment does not depend on the property’s cash flows, weights range from 25 percent for loans at or below 50 percent LTV to 90 percent for loans that exceed the property’s value.³ The most common bucket for conventional conforming loans, where borrowers put between 10 and 20 percent down (LTV of 80 to 90 percent), carries a 50 percent risk weight under the standardized approach.

Investment properties and other mortgages where repayment depends on rental income or property cash flows get a separate, steeper schedule. Those weights run from 30 percent at the lowest LTV to 110 percent when the loan exceeds the property’s value.³ The split forces banks to hold noticeably more capital against investor-owned rentals than against a homeowner’s primary residence at the same LTV.

Corporate and Other Loans

Corporate loans see a modest improvement under the 2026 standardized approach. The risk weight drops from the current flat 100 percent to 95 percent for corporate exposures, and to 90 percent for other assets not specifically assigned a different weight.³ For the largest banks using the Expanded Risk-Based Approach, publicly traded companies with strong credit profiles can qualify for even lower weights, while private firms with less transparency receive higher ones. Retail exposures like credit cards and personal loans follow a similar standardized structure calibrated to default probabilities across large portfolios.

This is a real shift. Under the old system, a loan to a Fortune 500 company and a loan to a privately held startup received the same 100 percent risk weight. The new approach makes capital charges at least somewhat proportional to actual credit quality, though the standardized framework still works through broad categories rather than individual borrower assessments.

The New Operational Risk Rules

Every bank generates risk from things other than its loan book: systems fail, employees commit fraud, lawsuits get filed. The Endgame replaces the old methods for capitalizing against these events with the Standardized Measurement Approach.

The SMA calculates operational risk capital based on a bank’s Business Indicator Component, which uses a combination of interest income, service income, and financial expenses as a proxy for the scale and complexity of operations.⁴ Bigger, more complex banks generate a higher BIC and must hold more capital. The formula is mechanical and the same for everyone, which eliminates the ability to game the number through proprietary modeling.

The international Basel framework includes an Internal Loss Multiplier that adjusts the capital charge based on a bank’s 10-year history of operational losses.⁴ The U.S. proposal sets this multiplier to 1, effectively neutralizing it. American regulators decided the BIC alone provides a sufficient baseline and that the loss-history adjustment introduced too much complexity and potential for manipulation. Banks still need to collect and report loss data, but it does not directly change their required capital.

The SMA permanently replaces the Advanced Measurement Approach, which let banks build their own mathematical models to predict operational failures. Regulators concluded that those models produced wildly inconsistent results across institutions.

Market Risk and Counterparty Risk for the Largest Banks

Banks with significant trading activity face a revamped market risk framework built around the Fundamental Review of the Trading Book. Under the 2026 re-proposal, this applies primarily to the largest banks, not to every institution with $100 billion in assets as originally envisioned.

The most consequential technical change is replacing Value-at-Risk with Expected Shortfall as the core risk measure. VaR tells you the most you would expect to lose on a given day at a chosen confidence level. It says nothing about how bad things get in the tail beyond that. Expected Shortfall averages the losses in those worst-case scenarios, giving regulators a clearer picture of tail risk during a genuine market crash.⁵ The 2008 crisis showed that the tail is exactly where banks bleed out.

The FRTB also draws a harder line between the trading book and the banking book. Under old rules, banks could shift assets between the two to capture whichever capital treatment was more favorable. The revised boundary imposes stricter criteria for classification and limits reclassification once instruments are assigned. Banks using internal models must also run a standardized calculation as a backstop, and assets for which reliable market data is scarce receive higher capital charges.

Alongside market risk, the Credit Valuation Adjustment framework capitalizes against a related exposure: when a bank enters an over-the-counter derivative contract, it faces the risk that its counterparty’s creditworthiness will deteriorate even if the counterparty never defaults. That decline causes mark-to-market losses. The Endgame provides two approaches for calculating CVA capital, the standardized approach and the basic approach, and banks must use the basic approach unless their supervisor approves them for the standardized method.⁶ Both replace previous internal modeling options that produced inconsistent results across banks.

Changes to the G-SIB Surcharge

The eight U.S. banks designated as Global Systemically Important Banks carry an extra capital surcharge on top of the standard requirements.⁷ The third component of the 2026 re-proposal overhauls how those surcharges are calculated.

The biggest structural change moves from 50-basis-point increments to 10-basis-point increments when assigning surcharge levels.⁸ Under the old system, a bank sitting just above a scoring threshold could see its surcharge jump by half a percentage point for a marginal increase in systemic risk. The finer increment makes the relationship between a bank’s actual risk profile and its required capital more proportional.

The proposal also changes how the underlying scores are measured. Instead of relying on a single year-end snapshot, banks would calculate certain systemic indicators as annual averages of daily or monthly values.⁸ That closes a well-known loophole where banks would temporarily shrink their balance sheets around December 31 to lower their systemic scores and then expand again in January.

Unrealized Losses on Securities Now Count

The March 2023 collapse of Silicon Valley Bank exposed a gap in the capital framework. Many mid-size banks could exclude unrealized losses on their securities portfolios from their regulatory capital ratios. When interest rates rose sharply, those banks looked well-capitalized on paper even as the market value of their bond holdings had fallen dramatically.

Both the 2023 and 2026 proposals require banks with $100 billion or more in assets to reflect unrealized gains and losses on certain securities in their common equity Tier 1 capital. This is sometimes called eliminating the AOCI (accumulated other comprehensive income) opt-out. The 2026 version extends the transition period to five years, giving affected banks more time to adjust their interest-rate risk management and securities portfolios.¹ Over time, reported capital ratios will give a more honest picture of a bank’s financial position during periods of interest-rate volatility.

What Happens When a Bank Falls Short

Banks that drop below their total capital requirement face automatic restrictions on dividends, share buybacks, and discretionary bonus payments.⁹ This is not a negotiation. The restrictions kick in mechanically once capital ratios fall into the buffer zone, and they get progressively tighter the further below the requirement a bank falls.

The total requirement stacks several layers: a minimum capital ratio, a stress capital buffer based on the bank’s performance in the Federal Reserve’s annual stress tests, and for G-SIBs, the systemic surcharge. A bank can operate while in the buffer zone, but its ability to return capital to shareholders is curtailed. The deeper into the buffer it falls, the larger the share of earnings it must retain rather than distribute. That creates a strong incentive for management and boards to maintain capital levels well above the minimum.

These automatic restrictions are distinct from formal enforcement actions like cease-and-desist orders, which regulators can pursue if a bank’s condition deteriorates further. The buffer framework is designed to be the early-warning system that prevents banks from reaching that stage.

What It Could Mean for Borrowers

Capital requirements are not just a concern for bank executives. Higher capital charges on specific loan types can increase borrowing costs or push lending toward non-bank lenders that are not subject to the same rules.

Mortgage lending drew the most attention during the 2023 comment period. The original proposal would have sharply increased risk weights for mortgages, particularly those sold to Fannie Mae and Freddie Mac. The 2026 re-proposal dialed that back significantly, and the agencies specifically stated that both proposals aim to “reduce disincentives for mortgage lending.”¹

Any increase in capital requirements for a given exposure type still tends to get passed through to borrowers, at least partially. A bank that must hold more equity against a category of loans will either charge more for those loans or shift its portfolio toward exposures that require less capital. Whether the 2026 calibration is mild enough to avoid meaningful price increases will depend on the final rule and how individual banks adjust. The agencies’ own estimate that overall capital levels would modestly decrease suggests the repricing effect may be smaller than initially feared.

Where the Process Stands

As of mid-2026, none of these rules are final. The comment period on the three proposals closes June 18, 2026.¹ After that, regulators will review comments, potentially make further changes, and issue a final rule. Given that the first proposal in July 2023 took nearly three years to reach this re-proposal stage, the timeline for a final rule is uncertain. The specific calibrations and effective dates remain subject to change until the rule is finalized and published.

1
Federal Reserve Board. Agencies Request Comment on Proposals to Modernize the Regulatory Capital Framework and Maintain the Strength of the Banking System
2
Federal Reserve Board. Agencies Request Comment on Proposed Rules to Strengthen Capital Requirements for Large Banks
3
Federal Register. Regulatory Capital Rules: Regulatory Capital and Standardized Approach for Risk-Weighted Assets
4
Bank for International Settlements. OPE25 – Standardised Approach
5
Federal Deposit Insurance Corporation. Basel III Endgame
6
Bank for International Settlements. MAR50 – Credit Valuation Adjustment Framework
7
Financial Stability Board. 2025 List of Global Systemically Important Banks (G-SIBs)
8
Federal Reserve. Board of Governors of the Federal Reserve System – Basel III Proposal, GSIB Surcharge Proposal, and Standardized Approach Proposal
9
Federal Reserve Board. Federal Reserve Board Announces Final Individual Capital Requirements for Large Banks