Wall Street’s biggest lobbying groups sent a letter to US banking regulators on June 17, asking them to pare back the Basel III “Endgame” capital rules even further than a March proposal already attempted. The core argument: the current framework could jack up capital requirements for trading activities by 30% to 89%, which would make it significantly more expensive for banks to do things like, well, trade US Treasuries.

The letter landed on the desks of three agencies: the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC). Its timing was not subtle, arriving just one day before the comment period for the latest round of proposals officially closed on June 18.

What Basel Endgame actually means

Think of capital requirements as the financial padding banks are forced to keep on hand in case things go sideways. Basel III Endgame is the final phase of international banking rules designed after the 2008 financial crisis to prevent banks from over-leveraging themselves into oblivion.

US regulators did try to address some of these concerns back on March 19, when they released revised proposals designed to lower the overall capital burden on large banks by roughly 4.8% to 5%. That was supposed to be the olive branch. Wall Street is now saying the olive branch needs to be bigger.

The crypto angle you didn’t see coming

Here’s where this gets interesting for digital asset markets. Buried within the Basel framework is a classification system for how banks should treat crypto exposures on their balance sheets. Group 2 crypto assets, which include most tokens that don’t meet strict criteria for tokenized traditional assets, carry a risk weight of 1,250%.

To put that number in context: for every $1 of Group 2 crypto a bank holds, it essentially needs to set aside $1 in capital. That’s not a rounding error. That’s a de facto prohibition on banks holding these assets in any meaningful quantity.

The Basel Committee on Banking Supervision is currently reviewing this framework amid sustained industry pushback. If the committee ultimately softens its stance on crypto risk weights, it could open the door for traditional financial institutions to hold and trade digital assets without facing punitive capital charges.

What this means for investors

For traditional market participants, the stakes are more immediate. If regulators don’t budge, banks will likely reduce their market-making activities in Treasuries and other fixed-income products. That means wider bid-ask spreads, less depth in order books, and more volatility during stress periods.

The gap between what Wall Street wants and what regulators are offering sits somewhere between 4.8% and 89%, depending on which number you focus on.