Basel rules hit banks with 25% capital hike. Fed activates countercyclical buffer. Stress tests now averaged over two years.

The banking rulebook is getting rewritten, and most people haven’t noticed. On July 1, 2025, the Federal Reserve, FDIC, and OCC began implementing the final phase of Basel III reforms. These changes target banks with over $100 billion in assets and will be phased in through 2028. The new framework overhauls how capital requirements are calculated, how unrealized losses are treated, and how risk is measured across credit, market, and operational categories. The regulators say it’s about stability. Traders are calling it stealth QE. Most observers are still trying to figure out what just happened.

The capital ratios are getting heavier. Common equity tier 1 requirements are projected to rise by 16% to 25% for the largest banks. That’s not a tweak. That’s a full recalibration. Banks will now have to include unrealized gains and losses from available-for-sale securities in their capital ratios. That means market volatility hits the books directly. The supplementary leverage ratio and countercyclical buffer are also being activated. These aren’t optional. They’re baked into the new rules.

Internal models are being sidelined. The reforms replace model-based risk calculations with standardized formulas. That’s a shift away from bank discretion and toward uniformity. Credit valuation adjustment risk for derivatives will now be measured using non-model approaches. Smaller banks with significant trading activity will also be pulled into the new market risk provisions. The regulators are expanding the net.

The stress testing regime is changing too. The Fed will now average results from the past two years to calculate the stress capital buffer. That’s meant to reduce volatility in capital requirements. But it also means banks can’t game the test with one-off performance. The buffer will now take effect on January 1 instead of October 1, giving banks more time to adjust.

Liquidity rules are under review. The Treasury and Fed are reassessing the role of reserves versus other funding sources. The discount window and Federal Home Loan Banks may be reclassified as core liquidity tools. That could shift how banks manage their balance sheets during stress events. The regulators are also considering removing “reputation risk” from the supervisory framework and redefining “unsafe and unsound” using objective financial metrics.

The rule changes are dense. But the implications are clear. Banks will need more capital. They’ll have less flexibility. And they’ll be supervised under a tighter, more formulaic regime. The regulators say it’s about resilience. The market sees it as a liquidity injection masked as prudence. Either way, the system is shifting.