The response to the 2008 financial crisis followed the post-World War II geoeconomic playbook of multilateral consensus and coordination. The Financial Stability Board, the G20’s 2009 reboot of the decade-old Financial Stability Forum, set in motion far-reaching regulatory reforms including a new bank capital regime, Basel III.
Finalized in 2017 under the aegis of the Basel Committee on Banking Supervision – a multinational body born of an earlier crisis (the 1974 Herstatt Bank failure) – Basel III remains in a protracted “endgame” implementation phase. While the global hierarchy persists in stressing the importance of completion, frictions are emanating from the United States.
Big U.S. banks have consistently complained that Basel III would unnecessarily reduce financing and intermediation capacities and harm their global competitiveness. Under pressure last year, toward the end of the Biden administration, the top federal regulators began discussing the possibility of revisiting their 2023 proposal. The new Trump administration, in addition to deregulatory leanings, brought an “America first” attitude into international alliances and agreements.
Might the Basel framework face challenges similar to how President Donald Trump renounced the Paris climate agreement, raised tariffs on trading partners and called for more military spending by NATO allies?
“The trend over the last 17 years toward national competitiveness gaining ground over coordinated regulations – most noticeable in the United States – could fragment the Basel III endgame and the global financial regulatory framework more broadly,” said a May 13 article by Hung Tran, nonresident senior fellow with the Atlantic Council GeoEconomics Center and former Institute of International Finance executive managing director.
Klaas Knot: “Cooperation is indispensable.”
Tran noted that U.S. uncertainty has slowed European timelines. The U.K. Prudential Regulation Authority pushed its “Basel 3.1” back by a year, to January 2027. Large European banks want to move the EU Fundamental Review of the Trading Book “another year past the already extended target date of 2026, in the context of delays in the U.S and U.K,” and the European Commission launched a consultation in that regard.
Nearing the end of his term as Financial Stability Board chair, Netherlands central bank president Klaas Knot said in a letter to G20 finance ministers and central bank governors: “The banking turmoil of March 2023 highlighted the need for jurisdictions to implement the agreed international reforms so that the financial system can absorb rather than amplify stress. One notable example where further progress is needed is in implementing the finalized Basel III reforms in full and consistently.”
As financial-system interconnectedness “continues to deepen,” Knot maintained, “cooperation among regulators is indispensable. The FSB remains uniquely positioned to facilitate this cooperation, because our diverse membership, like the financial system itself, spans sectors and regions. Being able to work collaboratively has been, and will continue to be, our greatest asset.”
A politically charged critique of global regulatory governance was brewing before last November’s presidential election.
On September 10, a day ahead of a hearing of the House Financial Services Committee’s Financial Institutions and Monetary Policy subcommittee, Representative Andy Barr introduced a bill that he said would “enhance Congress’s ability to oversee [federal financial] agencies’ participation in international organizations, making certain that their actions align with the best interests of our economy and national security.”
Organizations that the Kentucky Republican identified when opening his “Transparency in Global Governance” hearing were the Bank for International Settlements, the Basel Committee on Banking Supervision (which is headquartered at the BIS in Switzerland), and the Network for Greening the Financial System (NGFS, based in France).
Congressman Andy Barr: “Lack of transparency.”
“Despite numerous attempts to obtain transparency, we still know next to nothing” about U.S. financial regulators’ interactions with “global governance bodies,” Barr asserted. “Lack of transparency and willingness to engage with Congress is incredibly concerning given our U.S. regulators’ participation in and reliance on standards set forth by these bodies.”
A September 11 letter from Barr and 11 other representatives to Federal Reserve Chair Jerome Powell brought up G-SIB (global systemically important bank) capital surcharges and “the manner in which Federal Reserve officials negotiate outcomes on those surcharges within opaque global governance proceedings.”
They closed the letter by asking: “In the interest of maintaining a level playing field internationally and protecting U.S. global competitiveness, how does the Federal Reserve Board justify agreeing to lower the capital requirements for systemically important European banks in 2022 and, approximately one year later, proposing to raise the capital requirements of U.S. banks by roughly 20% in the Basel III Endgame proposal?”
Another letter, sent by Barr and Senator Bill Hagerty of Tennessee to then Treasury Secretary Janet Yellen and co-signed by House and Senate Republican colleagues, called out the EU Corporate Sustainability Due Diligence Directive’s extraterritorial “regulatory encroachment.” They alleged “a serious breach of U.S. sovereignty and a direct threat to the global competitiveness of American companies,” allowing European officials “to dictate draconian social and climate policies to American companies.”
Christina Parajon Skinner, associate professor of legal studies and business ethics, University of Pennsylvania, and co-director, Wharton Initiative on Financial Policy and Regulation, doubled down on BIS, BCBS and NGFS. They “make decisions opaquely,” she testified, “in the absence of any monitoring or checks by democratic institutions; their governance and structure perpetuates this status quo.
Christina Skinner: “Unchecked mission creep.”
“Second, decision-makers at these global governance institutions have incentives to increase their remit by addressing an indeterminate category of financial stability risks; but when translated into U.S. banking supervision, such novel supervisory initiatives may clash with U.S. law and preexisting political choices.”
Skinner suggested that the international bodies are more susceptible to “unchecked mission creep” than are domestic agencies constrained by statute and formal oversight. Participation in the BCBS implies buying into global standards in the interests of financial stability.
“In the spirit of international regulatory comity, the U.S. has mostly done this,” Skinner observed, also noting the practice of “gold plating” Basel standards, which was said to disadvantage the biggest banks in the U.S. endgame proposal.
“Likely for this reason, [the Fed] agreed to participate as an observer at the NGFS despite having no mandate to engage in sustainability- or climate-related policy work,” Skinner said. “Aware of this regulatory dynamic, the market no doubt takes its cues from what happens at Basel and the FSB, and banks accordingly will adjust their behavior to these global standards in the expectation that U.S. supervisors will generally want to heed them, too.”
The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency withdrew from NGFS this year.
Those three key banking agencies plus the Federal Reserve Bank of New York are among the 45 entities from 28 jurisdictions in the BCBS membership. The Federal Reserve Board is one of the 63 BIS member central banks and monetary authorities. The Fed, Securities and Exchange Commission and Treasury Department are represented on the Financial Stability Board.
Basel has been continually attacked. The Financial Services Forum, currently chaired by Citigroup CEO Jane Fraser and consisting of “the eight largest and most diversified financial institutions headquartered in the United States,” mounted an “Americans Can’t Afford It” campaign, highlighting economic, capital market and Main Street impacts from the endgame requirements on G-SIBs.
“Hiking capital requirements for markets’ activities would be akin to a tax on companies, local governments, consumers and savers, harming consumers and businesses throughout the U.S. economy” was the “bottom line” on a November FSF fact sheet.
In a July 2024 speech, FDIC Vice Chairman (now acting chair) Travis Hill said that the endgame proposal issued a year prior “lacked appreciation for its real-world impacts, and I appreciate the widespread acknowledgment that broad and material changes are necessary. I agree with calls from many others that a re-proposal is necessary,” and not in selective or piecemeal fashion.
Peter Ryan, managing director and head of international capital markets and strategic initiatives, SIFMA, said in a podcast that “the most prudent path is a full re-proposal of the Basel endgame that covers all the so-called ‘risk stripes’ in the proposed framework, including credit, operational and market risk. A full re-proposal is also the best way to ensure that there is broad consensus around the final rule and will help ensure that it is a framework that is built to last.”
William Isaac: “Complex and dubious models.”
The author of a September American Banker article, “It’s Time for the U.S. to Withdraw from the Basel Capital Accords,” William Isaac said he declined to adopt Basel I when he was FDIC chairman (1978-1985). He is dismissive of the entire enterprise.
“The Basel regimes are riddled with complex and dubious models and are expensive, cumbersome, and nearly impossible to understand and enforce,” according to the chairman of Secura/Isaac Group. “The financial world moves much too fast to tolerate more than a decade of development and startup time for each of the three Basel regimes. And in their drive to promote uniformity among nations, the Basel rules drive down the capital standards among the stronger nations.
“The U.S. should abandon the Basel regime completely and return to the days when bank regulators met, communicated, coordinated, cooperated, and supported each other – and where we trusted individual nations to determine the form and degree of regulation that would work best in their countries.”
The U.S. administration’s Basel endgame approach is a work in progress. Treasury Secretary Scott Bessent may have indicated its tone.
In an April speech to the Institute of International Finance, coinciding with the International Monetary Fund and World Bank spring meetings, Bessent said the two multilateral organizations “have enduring value.” But they were thrown off course by mission creep, and reforms are required to ensure that they “are serving their stakeholders, not the other way around.”
“The IMF was once unwavering in its mission of promoting global monetary cooperation and financial stability. Now it devotes disproportionate time and resources to work on climate change, gender and social issues.”
Bessent offered reassurance that “America first does not mean America alone. To the contrary, it is a call for deeper collaboration and mutual respect among trade partners,” and the U.S. is seeking to expand its leadership role in such institutions “to restore fairness to the international economic system.”
Also in April, Bessent took a swipe at the Basel endgame in American Bankers Association remarks that were otherwise noteworthy for him saying that after four decades of Wall Street growing “wealthier than ever before . . . It’s Main Street’s turn to hire workers. It’s Main Street’s turn to drive investment. And it’s Main Street’s turn to restore the American dream.”
“Important aspects of the endgame standards cannot be explained or even understood because the Basel Committee offered little rationale,” the Treasury secretary stated. “Despite that, somehow the only time the U.S. bank regulators found cause to deviate from the Basel Committee’s standards was to reverse engineer increases in capital.
Secretary Bessent: “A different approach.”
“We need to take a different approach. We should not outsource decision-making for the United States to international bodies,” he continued. “Instead, we should conduct our own analysis from the ground up to determine a regulatory framework that is in the interests of the United States.
“To the extent that the endgame standards can provide inspiration, we could borrow selectively from them. But this should only be done to the extent that we can independently validate the underlying rationale and then make that rationale available for public comment.”
Deputy Treasury Secretary Michael Faulkender said the same on May 13, adding, “We will also look at the capital buffer framework that applies to the largest banks” for their stress tests, and “bank regulators are now hard at work on a supplementary leverage ratio proposal.”
Inclusion in the 3% SLR of “non- or low-risk assets such as U.S. Treasury securities has drawn particular frustration,” said the Atlantic Council’s Hung Tran. This “boosts the required capital level and makes it costly for banks to commit capital in their broker-dealer activities needed to support a smooth functioning of the U.S. Treasury market.”
Bessent has said he expects the Fed, FDIC and OCC to deliver a capital-freeing SLR proposal over the summer. Fed Governor Michelle Bowman, confirmed June 4 as vice chair for supervision, is expected to take a leading role in capital and endgame efforts, along with other rulemaking. Basel III will be on the agenda of a Fed capital conference in July, Bowman said on June 6.
“There is general agreement that the post-crisis regulatory reforms have significantly contributed to fostering financial stability, particularly by enhancing banks’ resilience,” Fernando Restoy, chair of the BIS Financial Stability Institute, said in a May 27 speech in Vienna.
Senior regulators defend those reforms even as industry leaders argue that they “may have gone too far and that a rethinking is necessary to preserve banks’ ability to perform their intermediation function” and boost their competitiveness.
To Restoy, the concerns are legitimate, and “regulation is always an evolving journey,” yet “I believe the claim that the post-crisis prudential framework is significantly undermining banks’ businesses has yet to be convincingly substantiated.”
Although in the post-crisis period “U.S. banks have clearly and persistently outperformed their EU counterparts” in profitability and market valuation, “it is important to note that there is no evidence that capital requirements for banks in the EU are significantly more stringent than those in the United States, at least for large internationally active banks,” Restoy elaborated. “More broadly, the argument that particularly demanding prudential policies in the European banking union place European banks at a disadvantage compared with their international competitors has not been effectively substantiated so far.”
Comparisons of U.S. and European banks’ ROE (left graph) and G-SIBs’ price-to-book-value ratios (right graph) from Fernando Restoy, “Financial Regulation and Growth: What Should Be the European Policy Priorities?” (May 2025)
Thus there is a comfort level with, and ongoing support for, the current framework with global coordination and standard-setting, as was expressed in an April Brookings Institution event by European Central Bank supervisory board chair Claudia Buch. She was “optimistic” about the Basel III phase-in now underway, noting that Europe has unified prudential regulation but that not all countries are harmonized.
In its May Financial Stability Review, the ECB underscored the “ongoing implementation of the outstanding elements of the Basel III reforms and of enhancements to the EU bank crisis management and deposit insurance framework,” and warned that “any delay could undermine the global level playing field.
Timothy Geithner: Preserve the framework.
“The ECB also remains committed to coordination with international fora more generally, including the Basel Committee on Banking Supervision, helping to avoid regulatory fragmentation.”
At the BCBS, “the full, timely and consistent implementation of Basel III continues to be the highest priority” on its two-year work program, which is endorsed by the committee’s oversight body, the Group of Governors and Heads of Supervision (GHOS).
When asked in a recent Bloomberg Odd Lots podcast, “Does Basel matter anymore?”, Timothy Geithner cited both its contributions and adaptability. Setting a “common floor” of norms and standards for major banks was “very valuable,” said Geithner, who was New York Fed president when the global crisis hit, then Treasury secretary from 2009 to 2013. He is currently chair of Warburg Pincus and of the Yale Program on Financial Stability.
“Of course, you want that floor to be set at a reasonably conservative level, not easily eroded over time, but countries should be free to go beyond that,” Geithner said, rather than be hemmed in by consensus rules.
“We were more conservative in some ways,” he recalled. “But anyway, I think it's a valuable framework and we should want to protect and preserve it, but always look at it fresh.”
Mercatus Center distinguished senior fellow Thomas Hoenig, a past Federal Reserve Bank of Kansas City president and FDIC vice chair, reflected in a FinRegRag article on how the “importance of strong capital exposes deeper flaws in modern regulatory frameworks.” The Basel accords, conceived to harmonize global capital standards, became “a case study in unintended consequences.
Thomas Hoenig: “Unintended consequences.”
“Risk-weighted capital rules, allowing supervisors to employ complex models to align capital buffers to risk, were gamed by banks to minimize those very buffers.” Mis-weighting could result in dangerous risk concentrations at banks that appeared to be well capitalized.
“Unnecessary complexity breeds fragility,” Hoenig contended. “A straightforward leverage ratio – equity against total assets – would offer a more reliable gauge of health than risk-weighted calculus.”
“Capital – real, unencumbered equity – must serve as the bedrock of resilience,” Hoenig posited. “Complex liquidity mandates and stress-test models should yield to a focus on robust leverage ratios and credible resolution outcomes, with no exceptions. History shows that banks with strong capital buffers weather financial storms best; those that game the rules tend to fail or require bailouts.
“Policymakers must simplify and strengthen capital standards and allow institutions to fail – orderly wind-downs reinforce accountability far more effectively than bailouts do.”