Basel III Endgame: Capital Burden Divergence Emerges Between JPMorgan and Goldman Sachs
Taylor Wilson
The Fed's Basel III endgame rules are entering the final stretch, and a direct clash has surfaced between JPMorgan and Goldman Sachs over how GSIB surcharges are calculated — the fight is not about total capital levels but about who pays.
Why has this rule been rewritten twice?
In 2023, then-Fed vice chair for supervision Michael Barr proposed a draft requiring large banks to hold 20% more equity capital. The industry pushed back hard — even running attack ads during the Super Bowl halftime show.
After Trump returned to the White House, Michelle Bowman took over rulemaking. Her March revision slightly lowered overall capital requirements versus the status quo, and major banks accelerated buybacks and dividends accordingly.
This means → the rule shifted from "big increase" to "rebalancing at roughly the same level." Total pressure eased, but the question of who pays more and who pays less got sharper.
What exactly are JPMorgan and Goldman fighting over?
The dispute centers on how the GSIB surcharge — the extra "safety cushion" capital required of globally systemic banks — is calculated.
The current rule measures each bank's reliance on short-term wholesale funding as a ratio: short-term funding divided by risk-weighted assets. Commercial banks carry larger asset bases, so the denominator is big and the ratio is low — meaning lower surcharges. Goldman and Morgan Stanley hold trading-heavy portfolios with smaller risk-weighted assets, pushing their ratios — and surcharges — higher.
Bowman's revision would drop the denominator comparison and assess each bank on the absolute dollar volume of short-term funding. In plain terms = it changes the contest from "percentage game" to "total-amount game." Commercial banks, which borrow more in absolute terms, suddenly move from the winning side to the losing side.
Do either side's arguments hold up?
JPMorgan's case: the new formula penalizes lending to households and businesses, and will raise credit costs in the real economy.
Goldman's case: the current rule overcharges capital on funding secured by stocks and bonds — collateral that can be sold quickly under stress — making its liquidity risk far lower than credit-card debt or commercial loans.
This means → both sides are effectively arguing "my business carries less risk, so I shouldn't pay more." The real fight is over who gets to price risk, not over risk itself.
What will decide the outcome?
Bloomberg Opinion notes the current method has logical flaws for both types of bank: banks are already constrained by liquidity rules, and whether capital rules need to pile on a second penalty is itself debatable.
The final outcome will be shaped more by political negotiation and compromise than by any technically optimal answer.
This reflects a deeper issue: when rules are themselves the product of bargaining, the risk protection they promise may fall short exactly when it is needed most.
Content is for reference only, not financial advice.