Capital requirement changes could boost lending, but prompt concerns

The Federal Reserve ’s proposed changes to capital requirements for banks could spur additional consumer lending activity, including in auto, but have prompted concerns from financial institutions. The proposals aim to streamline requirements for how much banks must set aside to cover potential losses and free up more capital for lending, Art Coren , partner at law firm Husch Blackwell , told Auto Finance News . His practice serves banks and bank holding companies across debt and equity capital raising, financing, corporate structuring and regulatory requirements. “Bank regulators are always trying to develop optimal capital levels,” he said. “The goal is to find the right balance ... between allowing banks to have more money to lend and ... maintaining a safe and sound capital level.” The Fed, alongside the FDIC and the Office of the Comptroller of the Currency (OCC) , on March 19 published three proposals aimed at streamlining risk-based capital requirements for depository institutions and bank holding companies: The first proposal, primarily for the largest banks, would scale back to a single required set of calculations used to determine if the institution is compliant with risk-based capital requirements. There are currently two sets. The updated approach factors requirements for risks associated with credit, market, operations and credit valuation adjustment, or the potential for losses due to a deterioration in a counterparty’s creditworthiness tied to a portfolio of financial contracts whose value is derived from underlying assets. The second proposal, which would apply to all but the largest banks, would lower capital requirements for certain categories, such as mortgages, and improve the calibration and risk sensitivity tied to other exposure categories. The third proposal aims to improve how the Fed measures systemic risk for the purpose of determining additional capital requirements for the largest and more complex banks and better align surcharges — or required additional capital buffers — with that risk. While estimates vary, the changes could reduce required capital levels by 4% to 5% for the largest banks and up to about 8% for smaller banks, Coren said, noting that mortgages and business loans are examples of lending that may see an uptick in activity. "When the dollars can be used for other than supporting the capital base, that allows [those funds] to be freed up for lending." -- Art Coren, Husch Blackwell "When the dollars can be used for other than supporting the capital base, that allows [those funds] to be freed up for lending," he said. The proposals also allow “for recognition of lesser risk as the loan amortizes,” he said, noting that as the loan is paid off, “it requires less dollars for the risk weighting.” The Fed estimates that the proposal could “generate up to $1.26 trillion in new lending and securitization activity.” The Fed believes the proposals would “modestly reduce capital requirements for large banks and moderately reduce requirements for smaller banks,” but maintain a level of overall capital in the banking system higher than that prior to the 2008 financial crisis, according to a Fed release. However, the proposed changes would translate to modest declines in global systemically important banking holding company (GSIB) surcharges for large institutions such as JPMorgan Chase that are higher than levels under previous calculations, Chairman and Chief Executive Jamie Dimon said in an April 6 statement. “A properly designed framework should reward the resilience and strength of our diverse income streams and strong risk management,” he said. “With a surcharge of approximately 5.0%, JPMorgan Chase will have to hold as much as 50% more capital across the vast majority of loans to U.S. consumers and businesses when compared with a large non-GSIB bank for the same set of loans. By comparison, JPMorgan Chase’s surcharge was about 3.5% under the 2015 framework, Dimon said. "The proposed level just seems to punish our success." -- Jamie Dimon, JPMorgan Chase “While we can accept that some level of surcharge is appropriate given our position in the market, the proposed level just seems to punish our success,” he added. Chase Auto 's originations rose 1.9% year over year in the fourth quarter of 2025 to $10.8 billion, with auto outstandings up 5.1% YoY to $89.7 billion. Comments on the proposals are being accepted through June 18. Scaling back requirements The Fed initially proposed more stringent capital requirements under the Basel 3 Endgame rules following the 2023 failures of Silicon Valley Bank and others ; those requirements were set to go into effect on July 1, 2025. However, those proposals faced industry opposition and would have required large banks to keep more money in reserve based on how they calculate risk-weighted assets. Amid pending stricter requirements, many banks turned to synthetic risk transfer securitizations to offload part of their portfolio risk to third-party investors. Synthetic risk transfers allow a bank to shift the credit risk of a defined portfolio of assets to investors while maintaining the assets on its balance sheet and are often structured as credit-linked notes. The initial proposal in 2023 prompted concerns regarding a potential increase in cost of funds for institutions engaged in warehouse lending, according to a comment on the 2023 proposal from AI-powered lending platform Upstart urging the Fed to withdraw the rule. “We are convinced that if the proposed rule is implemented, it will directly and significantly increase our cost of funds and will negatively impact both cost and availability of credit for consumers,” Nat Hoopes , head of government and regulatory affairs, wrote in the Jan. 12, 2024 comment submitted to the OCC. "I f the proposed rule is implemented, it will directly and significantly increase our cost of funds." -- Nat Hoopes, Upstart Upstart uses warehouse funding from banks to support its lending operations. In the fourth quarter of 2025, its auto originations soared 344.4% year over year to $200 million. Under the Fed’s updated proposal, banks with significant trading activity must calculate capital requirements for securitization exposures (SEC-SA) based on delinquencies, losses and general risks involved in securitization transactions. The calculation also factors the p-factor, or capital penalty for securitization tranches, to ensure capital requirements exceed those of the underlying pool of assets. The 2023 proposal called for a higher p-factor compared with the updated proposal published in March. “Each of our warehouse facilities is a securitization exposure [and] each bank’s financing is a securitization exposure against which the bank must hold regulatory capital,” Hoopes wrote in the 2024 comment. “Because of its higher p-factor, the proposed SEC-SA calculation method would require our banks to hold significantly more capital against their warehouse securitization exposures than they do now.” The updates could have prompted banks to either scale back participation in asset-backed securities (ABS) or require higher returns on those deals, Hoopes wrote. “Higher interest rates, decreased liquidity and a smaller investor base for our term ABS will all result in more expensive and less available credit for American consumers,” he wrote. Editor's note: The story has been updated to reflect referenced comments were submitted on the OCC's website related to the Fed's proposal in 2023. Auto Finance News will present multiple invaluable events for industry professionals in 2026, starting with Auto Finance Summit East and Auto Finance Capital Summit in May. To see event agendas and register, visit autofinance.live .

Federal Reserve announces emergency meeting on auto lending regulations • Click for details

MARKET SNAPSHOT

Capital & Funding, Compliance

Capital requirement changes could boost lending, but prompt concerns

Related Posts

Lenders eye expanded leasing options as affordability challenges grow

Forward-flow picks up steam as private investors eye auto finance

Dealers fight growing transport fraud, when scammers impersonate shipping companies

Auto finance dealer strategies evolve as profitability tightens in 2026

Bank of America consumer vehicle net charge-offs tick down

CarMax Auto Finance originations down 1.5%

Wells Fargo Auto originations soar 110% YoY

Chase Auto originations down 3% YoY

Daily Intelligence Brief

Sponsored

Why credit unions give dealers an edge in today’s auto market

Driving better decision-making across auto finance operations with SAS

Auto finance’s first line of defense: Raising the standard in integrated software partnerships and data strategy

Driving Innovation in Automotive Refunds: How Onbe and Allied Solutions Are Modernizing the Payment Experience

Navigating the Margin Squeeze: EVs, Tariffs & Pricing — A Q&A with Earnix

Enhancing credit approaches to boost conversion and dealer loyalty

Tesla announces new fleet financing program

About

Company

Daily Newsletter