By Hugh Carney
ABA Viewpoint
Earlier this month, the Basel Committee on Banking Supervision announced that there is “broad consensus” among member jurisdictions to move forward with Basel III Endgame implementation. For the United States, this marks a critical inflection point, one that calls for not just adopting new rules, but reassessing the broader regulatory architecture that surrounds them.
This post is part of a series exploring what U.S. regulators should prioritize as they consider Basel III Endgame implementation. Here, we focus on the need to modernize the Regulatory Consistency Assessment Programme (RCAP) so that it evaluates substance over form and gives proper credit for the extremely robust and conservative national framework applied in the U.S. Future posts in this series will examine related priorities, including rolling back redundant and gold-plated rules that unnecessarily burden the U.S. capital framework.
The U.S. framework is among the strongest — but RCAP doesn’t recognize that
The United States maintains one of the most robust capital frameworks in the world. From stricter capital ratios to more comprehensive supervisory requirements, U.S. banks are held to a significantly higher standard than many of their global peers. Yet RCAP continues to focus on technical alignment with each specific provision of the Basel framework, often ignoring the broader strength and conservatism of the U.S. regime.
A glaring example is the treatment of securitizations. Due to Dodd-Frank’s prohibition on reliance on external credit ratings, U.S. regulators adopted the Simplified Supervisory Formula Approach — a conservative methodology that emphasizes risk sensitivity and discourages investment in riskier tranches. Banking agency analyses found SSFA to be broadly equivalent in conservatism to the Basel hierarchy noting “on average, the [SSFA] results in a higher capital requirement for US firms.” Nonetheless, in its 2014 RCAP assessment, the Basel Committee found fault in the U.S. approach not because of risk outcomes, but because the method diverged from the Basel text. This kind of rigid interpretation discourages sound innovation and undermines confidence in the review process.
But the lack of RCAP recognition for U.S. gold-plating extends well beyond securitizations. Key components of the U.S. framework substantially exceed Basel minimums, including the 100% standardized floor under the Collins Amendment, the Method 2 G-SIB surcharge, the enhanced supplementary leverage ratio (eSLR), and the CCAR stress testing regime. Under Method 2, some U.S. banks’ G-SIB scores have risen solely due to macroeconomic expansion, while Method 1 scores (used internationally) have remained flat. Moreover, the U.S. methodology double- and triple-counts certain exposures like short-term funding and derivatives, creating further capital inflation. Meanwhile, CCAR and eSLR impose additional capital demands unmatched by global peers.
Each of these elements independently raises capital requirements above Basel levels. Together, if they are maintained, they demonstrate that the U.S. framework is not only compliant, but unyeildingly more conservative to a fault — yet RCAP continues to treat it as deficient based on technical deviations.
Take overall capital levels into account
Moving forward, RCAP must evolve to reflect what ultimately matters: the capital outcomes that national frameworks produce. An amended RCAP methodology should remain consistent with the Basel Committee’s objective of promoting comparable implementation across jurisdictions. But comparability should not mean identicality.
When assessing whether a jurisdiction’s rules are aligned with international standards, the focus should include the overall level of required capital, not just how closely individual rules track the Basel language. In cases where U.S. requirements produce materially higher capital levels than the international standard, that conservatism should count toward compliance. Line-by-line deviations, particularly those driven by domestic legal constraints or tailored supervisory judgments, should not be considered determinative on their own.
This is especially relevant as the U.S. contemplates adopting the standardized approach to credit risk. Unlike other jurisdictions implementing it at a 72.5% output floor, U.S. regulators are expected to calibrate the framework at a full 100%. Despite this materially higher capital requirement, RCAP could still find the U.S. “non-compliant” due to technical differences, an outcome that would undermine the purpose of consistency assessments and penalize a jurisdiction for exceeding minimum standards.
We need outcomes-based reform
The American Bankers Association has consistently supported a more outcomes-based RCAP methodology — one that emphasizes capital strength and financial stability, not just checklist conformity. A reformed RCAP would more accurately reflect the prudential quality of national regimes and give regulators the flexibility to adapt Basel standards in ways that are consistent with domestic laws and market realities while still maintaining a level global playing field.
Global consistency is an important goal. But line by line consistency should not come at the expense of effectiveness. It’s time for the Basel Committee to update RCAP to reward strong frameworks, not penalize them.
If the U.S. continues to maintain one of the most conservative capital regimes in the world, it should at the very least receive recognition for those excesses under RCAP. That said, the need for RCAP reform diminishes significantly if U.S. regulators address the root of the problem: the overlapping, redundant, and gold-plated rules that unnecessarily layer on top of the Basel framework. Rolling back these excesses — and restoring coherence to the U.S. capital regime — will be the focus of the next post in this series.
ABA Viewpoint is the source for analysis, commentary and perspective from the American Bankers Association on the policy issues shaping banking today and into the future. Click here to view all posts in this series.
