Prudential Regulation
Prudential regulation ensures that banking organizations prudently manage risk, maintain sufficient capital and liquidity, and have credible recovery and resolution plans.
SIFMA supports a regulatory framework, as outlined in these key recommendations, that protects financial stability without impairing the functioning of U.S. capital markets, which provide three-quarters of the credit that fuels our economy.
As regulators finalize the Basel III Endgame and other capital proposals, it is critical that these rules not over-penalize banks’ capital markets activities – these actions could reduce market liquidity, increase costs, and hinder economic growth.
Excessive capital requirements risk undermining the U.S. market-based model that other economies seek to emulate.
By the Numbers
U.S. banks today are among the strongest and most well-capitalized in the world. Since the Global Financial Crisis, high-quality capital has tripled, loss-absorbing capacity has increased sixfold, and liquidity has grown twelvefold. Independent studies find capital levels at or near optimal, and policymakers from across the government have affirmed the system’s resilience.
Key Focus Areas
Reforming the Basel III Endgame Proposal
SIFMA has expressed significant concern that the Basel III Endgame, as proposed, would substantially increase capital requirements – especially for capital markets activities – without sufficient analytical justification.
We advocate for a recalibrated, data-driven approach that:
- Eliminates overlap with stress testing and other capital rules;
- Aligns the Global Market Shock (GMS) with the Fundamental Review of the Trading Book (FRTB);
- Recognizes diversification benefits;
- Allows prudent use of internal models;
- Removes punitive treatments for derivatives, securitizations, and Securities Financing Transactions (SFTs); and
- Provides clear implementation timelines with at least 18 months for compliance.
Improving the Stress Testing Framework
Stress testing remains an essential prudential tool but must be transparent, predictable, and risk-based. SIFMA recommends:
- Aligning scenarios with “severe but plausible” conditions;
- Allowing public input on scenario design; and
- Reducing excessive volatility in Stress Capital Buffer (SCB) results year over year.
GSIB Surcharge and Long-Term Debt Proposals
Capital reforms must be evaluated holistically.
The GSIB surcharge should be recalibrated, particularly the weighting of short-term wholesale funding, to avoid distorting market intermediation.
The long-term debt proposal, as drafted, would raise funding costs and reduce liquidity. SIFMA has urged regulators to revise the rule to ensure it is appropriately scaled and does not disrupt market functioning.
Brokered Deposits
SIFMA remains concerned that the FDIC’s proposed revisions to brokered deposit rules would limit access to sweep accounts, an essential service for millions of retail investors. We have called for withdrawal or reform of the proposal to prevent unnecessary costs for both broker-dealers and clients.
Tailoring for Global and Smaller Institutions
Prudential standards should reflect the size, complexity, and risk profile of institutions. Internationally headquartered banks already subject to robust home-country standards should receive tailored treatment for U.S. operations. Smaller domestic firms engaged primarily in low-risk retail activities should likewise benefit from tailored capital and liquidity requirements.
These approaches are consistent with the Economic Growth, Regulatory Relief, and Consumer Protection Act (2018) and promote a more efficient, risk-sensitive regulatory framework.
The Bottom Line
The U.S. banking system is strong. Prudential regulation must remain balanced, evidence-based, and proportionate—supporting both financial stability and the efficient functioning of U.S. capital markets that drive growth across the real economy.
