Market reports on Thursday (August 27) disclosed the contents of a letter JPMorgan submitted to the Federal Reserve in June. In the letter, the bank estimated that within the Fed's overall plan to relax bank capital rules, the proposed adjustment to the "short-term wholesale funding" (STWF) metric used in the global systemically important bank (GSIB) surcharge would reduce JPMorgan's additional capital relief by $13 billion and Bank of America's by $9 billion. Meanwhile, Goldman Sachs and Morgan Stanley would each gain $1 billion to $2 billion in additional capital relief.

Wall Street's four largest banks have for years jointly lobbied regulators to ease capital restrictions, but with the final plan nearing completion, the divergence of interests over this specific provision has now surfaced publicly. The Fed's package of regulatory amendments proposed in March remains in the comment and revision phase, with no final version yet released.

Banks Split Over Shift in Short-Term Wholesale Funding Metric

US regulators impose an additional capital surcharge on GSIB institutions on top of minimum capital requirements to guard against systemic risk. The Fed's March proposal aims to make the surcharge more risk-sensitive, with a key change to how repurchase agreements, commercial paper, and other short-term wholesale funding are treated. The current methodology scores STWF based on its ratio to a bank's average risk-weighted assets (RWA). The revised proposal instead assigns STWF a fixed weight that is no longer scaled by the size of RWAs.

JPMorgan argued in its letter that this change effectively favors investment banks that rely more heavily on trading operations and short-term wholesale funding, while reducing the scale of capital relief available to traditional universal commercial banks. Based on 2026 federal regulatory data, short-term wholesale funding as a share of total liabilities stands at 37% for Morgan Stanley, 30% for Goldman Sachs, 24% for Bank of America, and 21% for JPMorgan. For JPMorgan, the $13 billion figure is equivalent to roughly 61% of the bank's second-quarter net income of $21.2 billion. JPMorgan shares closed Thursday at $353.

Surcharge Estimates Disclosed in Quarterly Report

In its second-quarter 2026 10-Q report, JPMorgan provided official capital calculations. Under the current rule baseline, based on positions as of December 31, 2025, the bank's applicable GSIB surcharge is 5.5%, set to take effect on January 1, 2028. If the March reproposal were adopted as written, the bank estimates the surcharge would fall to 5.2%, a reduction of 30 basis points. The proposed plan would also narrow the surcharge's incremental brackets from 50 basis points to 10 basis points and shift certain metrics to full-year or daily averages.

Combining the impact of the US "Basel III Endgame" reproposal with the GSIB surcharge reproposal, the bank's total Common Equity Tier 1 (CET1) capital requirement is expected to rise by roughly 4% relative to the 2028 current baseline. Looking at the Basel III reproposal alone, the increase would be about 6%, excluding management's hedging measures. JPMorgan's head of commercial banking previously told regulators that the existing STWF calculation method should be retained to reflect the balance-sheet scale and diversified funding characteristics of universal banks, warning that tilting the surcharge formula toward trading activity could indirectly raise financing costs for the real economy and small businesses.

Big Four Positions Diverge; Final Rule Expected Before Year-End

In this round of rule changes, Goldman Sachs and Morgan Stanley stand to benefit from their higher STWF ratios, with each investment bank expecting an additional $1 billion to $2 billion in capital relief. Morgan Stanley is widely viewed within the industry as the core force behind the push for this funding provision. JPMorgan and Bank of America, by contrast, have formally requested that the Fed withdraw or correct the methodology. It should be noted that the GSIB surcharge is essentially an additional CET1 ratio requirement applied to risk-weighted assets; the $13 billion and $9 billion figures referenced in the letter represent the release of existing capital buffers resulting from the regulatory adjustment, not a single-quarter profit-and-loss change.

The Fed has not yet announced a release date for the final plan, with market expectations pointing to a finalized version around the end of 2026. The ultimate fate of this funding provision will directly determine whether the tens of billions of dollars in capital can be restored as distributable capital for the two large universal banks.