The Basel Endgame Proposal for Regional Banks: A Potential Positive

Alongside the Basel III (Endgame) proposal released March 19^th, 2026, regulators introduced the little discussed Revised Standardized Approach, which applies to regional banks that fall below Category IV $100 billion in assets threshold. If enacted, this proposal would reduce risk-weighted asset requirements for these banks, potentially freeing up 7%-8% of Tier One Common Equity.* 

The framework simplifies and recalibrates capital rules for regional and smaller banks by:

• reducing mortgage and retail lending risk weights

• easing MSA treatment

• softening operational risk capital

• recalibrating standardized RWAs

• and preserving the AOCI opt-out

  
  

Possible Expanded Options for Capital Deployment

While the proposed capital relief applies across all categories, the largest proportional impact may accrue to banks below Category IV (<$100B in assets).

Our RAM Smid strategy owns three such regional banks. Each currently holds capital well above both the regulatory “well-capitalized” CET1 minimum of 6.5% and typical industry levels of 8%–9%. If implemented as proposed, the revised framework would further increase the amount of excess capital available for deployment.

The 1Q26 earnings calls for banks we’re invested in outlines early management estimates:

• Bank 1 ($66B assets): CET1 of 11.5%. Management estimated ~+100 bps uplift, creating “meaningful capital benefits” and expanding options for buybacks and potential acquisitions.

• Bank 2 ($67.9B assets): CET1 of 11.3%. Management estimated ~+85 bps uplift and described it as “something new…to study further” for capital deployment.

• Bank 3 ($43.6B assets): CET1 of 15.44%. Management estimated ~+50 bps uplift, supporting “stronger capital going forward,” including increased share repurchases.

Investor Neglect in Small Caps?

The 90-day comment period ends June 18, 2026. While implementation timing and the final form of the proposal remains uncertain, the rules could take effect as early as late 2026.

In our view, the proposal could represent a favorable development for several regional banks. We also believe the lack of discussion on the topic is yet another example of the extreme investor neglect we see in the small cap space.

A Potential Incremental Benefit

While we maintain specific investment theses on our holdings, we also view the broader regional bank group (e.g., the KRE index) as attractive given excess capital, low valuations, and strong dividend yields. As a few bank management teams have discussed, if implemented, the proposed framework could provide additional opportunities for capital deployment for value creation, including expanded share buybacks and potential acquisitions.

Intrigued? Please reach out to us, we welcome the chance to discuss our thoughts in greater detail.

Carpe Diem!

Notes:

*Our Take: Capital proposals & mortgage EO: PwC

This material is for informational purposes only and is not a recommendation or advice. Investments and strategies mentioned are not suitable for all investors. This does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Investing involves risk, including the risk of loss. No one can predict or project performance and forward-looking statements are not guarantees. There is no assurance that any securities discussed herein will remain in the portfolio at the time you receive this report or that the securities sold have not been repurchased. Securities discussed do not represent the entire portfolio and in aggregate may represent only a small percentage of the portfolio’s holdings. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor.

Rewey Asset Management is a registered investment advisor in the State of New Jersey