What Is the Basel III Endgame, and Why Are Banks So Upset About It?

An unlikely coalition of banks, community groups and racial justice advocates is urging federal regulators to rethink the plan they proposed in July to update rules governing how U.S. banks protect themselves against potential losses.

Regulators are calling for an increase in the amount of capital — cash-like assets — that banks have to hold to tide them over in an emergency to avoid needing a taxpayer-funded bailout like the one in the 2008 financial crisis. The demise of three midsize banks and a fourth smaller one last year, under pressure from rising interest rates and losses from cryptocurrency businesses, bolstered regulators’ views that additional capital is necessary. Financial regulators around the world, including in the European Union and Britain, are adopting similar standards.

Banks have long complained that holding too much capital forces them to be less competitive and restrict lending, which could hurt economic growth. What’s interesting about the latest proposal is that groups that don’t traditionally align themselves with banks are joining in the criticism. They include pension funds, green energy groups and others worried about the economic ramifications.

“This is the biblical dynamic: Capital goes up, banks yell,” said Isaac Boltansky, an analyst at the brokerage firm BTIG. “But this time is a little bit different.”