On March 12, 2026, Michelle W. Bowman, the Federal Reserve’s Vice Chair for Supervision, announced proposals to overhaul capital requirements for large US banks. In practice, this means a reduction in capital requirements for the eight largest US banks, including JPMorgan Chase, Bank of America and Goldman Sachs.
This decision is likely to be seized upon by those in Europe already pushing for lighter capital requirements in the name of international competitiveness. The EU Council is already calling for a “simplification” of financial services regulation, including the prudential framework. In February 2026, German and French Finance Ministers Lars Klingbeil and Roland Lescure wrote to Commissioner Albuquerque calling for an ambitious EU-wide “financial services simplification package”.
This political pressure is building at precisely the moment when the Commission is preparing its report on banking sector competitiveness, in response to a call for evidence to which we submitted a response.
On one hand, the Fed is at last completing the US transposition of Basel III standards, which represents genuine progress towards international regulatory convergence. On the other, it is using this exercise in compliance to introduce several substantial easings that cut against the very prudential logic these standards are designed to reinforce.
The G-SIB surcharge reduction: a decision without evidential foundation
The most contestable element of Bowman’s announcement is the downward revision of the surcharge imposed on globally systemically important banks (G-SIB surcharge). Bowman justifies this reduction on the grounds that the coefficients used to calculate the surcharge have not been updated since 2015 and have thus “drifted” from the international methodology. She proposes indexing these coefficients to economic growth, on the basis that balance sheet expansion in line with GDP does not reflect a genuine increase in systemic risk.
This argument deserves scrutiny. The size of large US banks has not merely grown in line with the economy: it has also been accompanied by deepening interconnections with the non-bank financial sector, greater exposure to derivatives markets, and increasing complexity in trading activities. The IMF (October 2025) and the ECB/ESRB (January and February 2026) have explicitly flagged that these interdependencies act as amplifiers of systemic shocks. Reducing the G-SIB surcharge in this context means lightening the safety buffer of precisely those institutions whose failure is most likely to trigger a system-wide crisis.
The “credit to the real economy” claim is not backed by evidence
Bowman’s central argument is that “excessive” capital requirements constrain lending to households and businesses, and therefore hamper growth, employment and living standards. The rhetoric is well-worn, the metaphor convenient. Her speech bears a telling title—“Capital Rules for the Real Economy”—that presupposes what it would need to prove.
Independent academic research does not support this claim. An ECB study (Behn & Reghezza, 2025) covering large euro area banks between 2019 and 2024 finds that capital requirements have no statistically significant effect on profit efficiency, and that the CET1 level that would maximise productive efficiency is around 18%—well above current levels. A Discussion Paper Bundesbank Discussion Paper (2025) covering US and European banks reaches the same conclusion: no negative link between capital ratios and profitability. The Financial Policy Committee reaffirmed in December 2025 that better-capitalised banks are, on the contrary, more stable lenders across the economic cycle.
The causal chain Bowman invokes—lower capital equals more credit to the real economy—is not empirically documented. What is documented, on the other hand, is that large US banks announced record shareholder returns in 2025, with share buybacks and dividends exceeding $120 billion. Capital requirements have clearly not prevented generous shareholder payouts; there is no evidence that further easing will translate into lending rather than further distributions.
The SVB lesson already forgotten
Less than three years ago, the failure of Silicon Valley Bank illustrated precisely what regulatory rollback—presented, again, as a proportionality measure—can produce in practice. In 2018, raising the systemic threshold from $50bn to $250bn in assets removed SVB from enhanced Fed supervision, a decision presented at the time as reasonable and targeted. The outcome was a bank failure requiring emergency public intervention that briefly threatened the stability of the US financial system. The speed with which this episode appears to have left institutional memory is itself cause for concern.