New Fed capital proposals address securitization concerns

The Federal Reserve ’s latest proposed changes to capital requirements for banks address a key concern outlined by large banks and auto lenders that use warehouse funding. In an initial proposal in 2023, the Fed called for an increase in the p-factor, or capital penalty for securitization tranches meant to ensure capital requirements exceed those of the underlying pool of assets. If the proposals, which faced a wave of industry opposition, would have moved forward in July 2025 as planned , the p-factor would have increased to 1 from 0.5. Under new proposals published March 19 , the p-factor was left at 0.5, according to the Fed. Read more on the updated proposals. As financiers draw against their warehouse lines to fund loans, the bank must hold capital against those loans, Scott Frame , executive vice president and head of research at the Bank Policy Institute (BPI), told Auto Finance News . “Capital requirements for warehouse lines are treated as securitizations under the capital rules,” he said. The Fed requires more capital held for securitizations as securitized transactions carry additional risk compared to straight funding a loan, Frame said. “Under severe stress, some things can go wrong that are often out of the bank’s control,” he said. BPI was one of several organizations that commented on the 2023 proposals and shared concerns regarding potential increases to capital charges on warehouse lines and negative impacts to credit availability, according to a Jan. 6, 2024, comment on the proposal submitted to the Office of the Comptroller of the Currency ’s website by BPI alongside the American Bankers Association and Financial Services Forum . Banks raised concerns Lenders including Ally Financial , Barclays and Wells Fargo raised similar concerns in comments submitted on the 2023 proposal. Wells highlighted that the securitization exposures calculation outlined in the original proposal would be sensitive to delinquency ratios and attachment points, or the threshold for when losses affect a specific tranche. “As a result, the proposal would significantly increase capital requirements for high-credit-quality facilities with low attachment points, e.g., prime auto,” the bank wrote in its Jan. 16, 2024, comment. Maintaining the p-factor at 0.5 is “helpful because the higher capital requirement increases the cost of the financing as equity is more expensive than debt, and that gets passed through to the lender and ultimately the borrower,” Frame said. Other considerations The Fed in the new proposals also reduced the risk-weight floor for certain securitization exposures, or the minimum level of capital that must be held to account for risks not captured in other calculations, to 15% from 20%. That move, Frame said, will also benefit banks. “The Fed was cognizant of the industry's concerns and has landed in a pretty good spot from their vantage point,” he said. However, banks still must hold additional capital against defaulted loans, Frame said. “There is some double counting in those calculations that the [Fed] has not fixed.” -- Scott Frame, Bank Policy Institute The banks “already have to hold more capital against that loan [and] have to hold extra capital because the loan wasn’t performing,” he said. “There is some double counting in those calculations that the [Fed] has not fixed.” Boost to lending While it’s too early to know how different institutions will be affected, the updated proposals should net a modest decline in capital requirements for banks and that is a positive for the industry, Frame said. “If the requirements come down some, especially as they pertain to retail loans like auto loans, on the margin that should help reduce the cost of credit for warehouse lines, other things being equal, and that should expand credit availability for all types of loans,” he said. However, easing of capital requirements on banks could result in weakened creditworthiness at the institutions, depending on how banks respond, according to a March 26 note from S&P Global Ratings . The rating agency will assess the proposals’ impact on the industry and how they compare to international standards. Comments on the updated proposals are due by June 18. 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 .

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New Fed capital proposals address securitization concerns

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