The Trump administration is leading the way, including measures that will reduce the amount of capital providers have to set aside. Lowering capital requirements worries some observers because the U.S. has sparked a global backlash against regulations intended to keep financial systems more secure, just as chatter about market bubbles and risks to financial stability is increasing.
How are bank capital requirements stacking up in major markets, and which lenders could emerge as winners?
THE WORLD LANDSCAPE
At the highest level, each country’s regulators must adhere to the Basel regulatory regime agreed after the 2008 global financial crisis. This is intended to ensure that regulators worldwide apply comparable minimum capital standards so that lenders can survive credit losses in difficult times. It suggests a level playing field.
But in practice there is a lot of wiggle room, as evidenced by the different approaches to implementing the latest rules – the ‘Basel III Endgame’. The European Central Bank and the Bank of England have postponed implementation of key components, such as those governing banks’ trading activities, while they wait to see what the US does.
THE US vs EUROPE
The capital ratio requirements for banks in the eurozone, Great Britain and the US appear similar on paper.
The Federal Reserve has a core equity tier-1 ratio (CET1) – the most common measure of capital – ranging from 10.9% to 11.8%, once some add-ons for Wall Street banks such as JPMorgan, Citi and Goldman Sachs are included.
The ECB applies an average CET1 of 11.2% for lenders including Deutsche Bank, Santander and BNP Paribas, plus a bank-specific ‘pillar 2’ requirement of around 1.2%.
The BoE’s financial policy committee has lowered the minimum benchmark ratio to an equivalent of 11% CET1, although that excludes company-specific surcharges that can currently add roughly 2.5% for larger banks.
All major lenders are holding more capital than necessary, with these self-imposed buffers designed to keep regulatory concerns at bay and give investors confidence.
BUT CAN YOU COMPARE?
Ask the CEOs of major banks and most will tell you their lender is having a tougher time. In reality, the picture is much murkier than that. That’s because comparing simple ratios can be misleading as prudential regulators take different approaches, reflecting how their local banking sectors differ.
Capital rules have two parts: the risk weight, which measures the risk of a bank’s assets, and a capital ratio which determines how much capital they must hold as part of those assets.
Unlike the UK and the eurozone, US banks cannot rely on internal models to determine their risk weights, which often means stricter restrictions for larger banks.
“Say it calmly, but the US may have a tougher approach,” says Jackie Ineke, Chief Investment Officer at Spring Investments and a former banking analyst.
Higher US weightings also reflect different models: US banks tend to transfer residential mortgages to public groups Fannie Mae and Freddie Mac, while mortgages remain on the balance sheets of European and British banks.
HAS NOT THE US SOFTEN ITS STANCE?
Yes.
Bank regulators appointed by President Donald Trump are trying to delay and weaken the introduction of new rules, and they are reviewing and rewriting existing capital regulations. According to them, there is sufficient room to better tailor this to the actual risks. Led by the Federal Reserve’s Michelle Bowman, the proposals include tweaking leverage rules, the so-called “GSIB surcharge” applied to the largest global banks, and redoing the Basel III endgame requirements.
The Fed is also revising its annual “stress tests” of major banks, a shift expected to shrink the capital banks must set aside against hypothetical losses.
All told, this means that US lenders will have much more excess capital. Analysts at Morgan Stanley have estimated that potential changes could give U.S. banks an additional $1 trillion in lending capacity.
However, that does not mean that banks will necessarily lend more. Some prefer to increase payouts to investors to support their stock price or finance acquisitions.
WHERE DOES THAT LEAVE THE EURO ZONE, GREAT BRITAIN AND JAPAN?
Both want to ease the burden on banks, but in limited ways that suggest there is no regulatory race to the bottom. The ECB announced plans in December to simplify its rulebook but maintain capital levels. That happened despite lobbying from banks who argued that softer rules would free up credit to boost the bloc’s lackluster economic growth.
Jose Manuel Campa, outgoing president of the European Banking Authority, said it was wrong to conclude that lower capital requirements have made lenders more competitive. “Well-capitalized banks are much better at making lending decisions,” he told Reuters. The BoE last month cut its overall estimate of banks’ system-wide capital needs by 1 percentage point to 13%, the first step down since the financial crisis, and said it would review the leverage ratio, which sets a minimum level of capital banks must hold relative to their total exposure, regardless of asset risk.
Analysts described the changes as important but measured.
However, in Japan, the banking regulator has made progress in implementing the final Basel III framework, which came into effect for the three ‘megabanks’ at the end of March 2024. The regulator had previously postponed implementation of the rules amid the coronavirus pandemic and the war in Ukraine.
MORE THAN CAPITAL
There is more to it than the size of the capital requirements. In Switzerland, for example, the government wants to tighten the rules on what counts as capital, much to the chagrin of UBS.
Then there are country-specific frameworks such as the UK ring-fencing regime that requires banks including Barclays and HSBC to capitalize their retail units separately from their investment banking activities.
According to economist Enrico Perotti of the University of Amsterdam, supervision is often more important than nominal capital ratios in determining what banks hold.
He said this is particularly the case in the US, where the latent message under Trump is “to get regulators off the backs of the banks”, showing that what mattered today “had less to do with numbers”.
Published on January 6, 2026
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