Major U.S. banks are already mapping out plans for capital they anticipate will be liberated if recent regulatory reform proposals are finalized. Executives say the changes associated with the implementation of the Basel III endgame could free up significant amounts of capital, and some institutions are publicly outlining how they might allocate those resources.
In a letter to shareholders, J.P. Morgan's chief executive estimated the firm could have about $40 billion in excess capital when taking the newest Basel III endgame proposals into account. The letter said reductions in required capital compared with 2023 proposals were welcome, but also stressed that certain elements remain problematic. The CEO specifically described the Global Systemically Important Bank, or GSIB, surcharge as "still broken," using that phrase in the shareholder communication.
Separately, staff from the Federal Reserve System held discussions with representatives of Morgan Stanley focused on a notice of proposed rulemaking that aims to boost transparency and public accountability around the Fed's annual stress test. The meetings also covered the board's requests for comment on the scenarios and models that will shape the 2026 stress tests.
During the meeting, Morgan Stanley representatives conveyed their perspectives on the stress test proposals, addressing a range of topics including the suggested pre-provision net revenue models intended for use in the 2026 stress test. The meetings consisted of exchanges about the proposed approaches rather than finalized decisions.
The combination of expected capital relief and ongoing dialogue with regulators indicates banks are preparing for a period of regulatory adjustment while engaging to shape the operational details of stress testing. Institutions that may see changes to capital requirements are laying groundwork for potential uses of freed capital, and large banks are actively participating in regulatory consultations about modeling and disclosure for future supervisory exercises.
Context note: The information above reflects statements made by bank leadership and discussions between Fed staff and bank representatives regarding proposed regulatory changes and the planning of future stress tests.