ISDA Calls for FRB, OCC, and FDIC to Recalibrate Re-Proposal of Basel III Capital Rules

ISDA called for the Federal Reserve Board, the OCC, and the FDIC to recalibrate their March 2026 re-proposal of U.S. Basel III Endgame rules, arguing that capital requirements for trading and capital markets activities remain misaligned with economic risk.

In a joint comment letter with SIFMA and the Institute of International Finance, backed by a quantitative impact study, ISDA called the proposal a constructive step forward but said targeted changes are needed to align trading-book capital with economic risk.

The study, conducted with the eight U.S. global systemically important banks, tested the Fundamental Review of the Trading Book portion of the 2026 proposal. It found market risk capital would rise about 89 percent under the standardized approach applied to a full trading portfolio and about 30 percent under a blended approach reflecting banks' current internal-model approvals alongside the standardized approach (see prior coverage).

ISDA warned that capital misaligned with risk raises the cost of market intermediation, hedging, and financing, with effects passed on to end users, businesses, and consumers. It asked regulators to make targeted calibration improvements before finalizing the rule while preserving overall safety and resilience.

Specifically, ISDA recommended (i) recalibrating the default risk charge - about 51 percent of market risk capital - by better recognizing equity hedges and adjusting treatment of non-U.S. sovereign exposures and funds; (ii) distinguishing between regulated and unregulated financial counterparties for credit valuation adjustment risk; and (iii) adopting a hedge coverage ratio adjustment to better reflect cross-product netting between derivatives and securities financing transactions under the extended standardized approach for counterparty credit risk.