US Blows the Floors Off Basel III – Risk.net
US banking regulators have reversed course on a key component of the Basel III international capital standards, abandoning plans to implement output floors that would have limited the extent to which banks could rely on internal models to calculate capital requirements. The decision, announced on March 19, 2026, marks a significant departure from previous efforts to align US regulations with global standards and has drawn criticism from some officials.
The output floors were intended to address concerns that internal models, although potentially more accurate, could underestimate risk and lead to insufficient capital buffers. Under the internationally agreed-upon Basel III framework, finalized in 2017, these floors would have restricted how far a bank’s internal model calculations could fall below those derived from standardized approaches set by regulators.
According to reporting from Risk.net, the move comes after a prolonged debate over the implementation of the “Basel III endgame” in the United States. Michelle Bowman, the Federal Reserve’s vice-chair of supervision, unveiled the latest version of the rules on March 19, signaling the abandonment of the output floors.
The decision has prompted a split among US regulators. Barr has criticized what he termed “downward deviations” in the US rule, suggesting a weakening of the intended safeguards. Bowman, however, has rejected what she characterized as “blind adherence” to global standards, indicating a preference for tailoring regulations to the specific circumstances of the US banking system.
The timeline for the US implementation of Basel III has been lengthy and complex, with the latest revisions coming after years of deliberation. Risk.net reported that the US rollout has been “a long time coming,” with the March 19 announcement representing a potentially final chapter in the saga.
The implications of this shift remain to be seen, but it signals a divergence in regulatory approaches between the US and other jurisdictions that have opted to retain output floors as part of their Basel III implementations. The move is likely to be debated further as regulators assess the potential impact on the stability and resilience of the US banking system.