US regulatory capital reforms: key takeaways for the US, EU and UK

Regulatory divergence between the US and the EU under Basel III is no longer a theoretical concern but a strategic constraint shaping capital allocation and risk appetite decisions. European banks must reassess how capital‑intensive activities are structured and booked across jurisdictions, particularly where internal models, market risk or leverage constraints apply asymmetrically. The priority is not to replicate US peers’ balance‑sheet strategies, but to ensure that capital optimisation decisions remain consistent with supervisory expectations in the EU while preserving economic performance and return on equity.

In practice, this translates into sharper management focus on booking models, entity structuring and capital deployment over the next 12–18 months. CROs and CFOs will need to closely align risk, finance and business functions to anticipate supervisory scrutiny, manage transitional effects and clearly articulate the rationale behind capital choices. At the same time, investor communication becomes critical: explaining performance differentials, timing effects and regulatory constraints transparently is essential to maintain market confidence in a context where global comparability between banks is increasingly challenged.

No Pillar 2 assessments will be conducted in the same way they have previously been calculated by the regulator. However, although a capital neutral stance is expected this will still be an assessment of your Pillar 2a risks, therefore, any change in your business model since your last SREP could still result in an increase in your capital requirements.

Capital balancing is likely to continue in till we see full finalisation of the US rules in the coming years. It is also possible that if any shift in approach is made by the EU to make the region more competitive this rebalancing could be used more long term to ensure the UK remains competitive against peers.

This is likely. As BA-CVA must be SA-CCR based, SA-CVA could be significantly more risk-sensitive than BA-CVA and generates lower capital. 

US text introduced 16 Real prices observations (RPO) threshold per year for Risk factor with more than 20 days of liquidity horizon. On top of that there is no longer an obligation of 4 RPOs minimum within 90 days window. finally for new issuances the RPO required is pro-rated until the 12 months of history is completed.

From initial assessment and based on the non-final rules, it seems that the 2026 US proposals may indeed leave EU and UK banks (FBOs) at a disadvantage when operating in the US. This is because their US capital is managed and assessed at the Intermediate Holding Company (IHC) perimeter, which can limit group-wide capital efficiency, while large US banks benefit more directly from a simpler, single‑stack ERBA framework.

The US package streamlines capital rules for Category I and II banking organisations by moving them to one set of risk‑based ratios under the expanded risk‑based approach (ERBA), reducing internal complexity for those firms. But for FBOs, whether this results in a clear disadvantage will depend on how the final rules land and how the combined recalibration plays out in practice for each bank’s US business model, especially trading and derivatives activities. This is why, beyond the headline “level playing field” question, foreign banks need to focus on potential variability in outcomes and prepare accordingly.

Foreign banks should expect meaningful dispersion in capital impacts because the U.S. framework is being recalibrated holistically, and the final rules may still be refined. While the aggregate effect appears modest, individual institutions could see significant increases in market-risk and CVA-related capital depending on their trading profiles, derivative exposures, and reliance on the ERBA.

To prepare, institutions should model multiple scenarios and evaluate how the combined framework, i.e., ERBA, standardised approach, G-SIB surcharge, stress testing, and leverage ratios, interacts to influence pricing, incentives, and competitive positioning in U.S. markets.