Large U.S. banks are transforming regulatory reforms from "policy expectations" into "capital budgeting." Reuters reported on April 14 that as U.S. regulators rewrite the final rules of Basel III and simultaneously adjust the framework for the global systemically important banks surcharge, several large banks have begun evaluating how to allocate billions of dollars of capital once released in the future. A week earlier, Reuters cited Morgan Stanley's analysis, stating that the excess capital held by 36 banks could rise to $320 billion after the implementation of the new regulations, 20% higher than the current level of about $266 billion.
Bank Assessments
JPMorgan Chase was the first to provide a relatively clear management perspective. CEO Jamie Dimon stated in a shareholder letter released on April 6 that after making several assumptions about regulatory reforms, JPMorgan currently has about $40 billion in excess capital, which currently achieves only about a 4% post-tax return. In the future, they hope to allocate this gradually to higher-return businesses as regulations take effect. However, he also emphasized that although the new plan is an improvement over the 2023 version, some aspects are "still unreasonable," particularly the GSIB surcharge mechanism, which remains flawed.
Policy Background
From a regulatory standpoint, these adjustments do not imply a systemic easing of capital constraints, but rather an attempt to recalibrate risk sensitivity, regulatory consistency, and the intermediary function of banks. The Federal Reserve, FDIC, and Office of the Comptroller of the Currency jointly released a proposal on March 19, stating that the three proposals "streamline capital requirements and better align regulatory capital with risks," while maintaining the safety and soundness of the banking system. According to a Federal Reserve Board memorandum, the Common Equity Tier 1 capital requirement for Category I and II banks will rise by 1.4% under the Basel III plan but will decrease by 3.8% after adjustments to the GSIB surcharge. When combined with the proposed stress test changes, the cumulative impact will reduce the relevant capital requirements by 4.8%.
Stress Tests
Discussions between banks and regulators have already entered a more technical phase. Reuters reported that Federal Reserve staff recently met with Morgan Stanley representatives to discuss proposed rules for annual stress test transparency and public accountability, as well as the consultation arrangements for scenarios and models for the 2026 stress tests. Morgan Stanley shared its views on the proposed stress test framework at the meeting, including the projected net income model for 2026. According to the Federal Reserve's February release of the 2026 stress test methodology document, during the public feedback review period, the 2026 test will generally continue to use the 2025 model framework, with only limited updates to individual models. This suggests that while the uncertainty regarding capital constraints has somewhat decreased, it has not been completely eliminated.
