Basel Endgame: Divergence, competition and the next strategic moves

The Basel Endgame is the fault line along which global banking competition will shift over the next three years. For the largest lenders, this final chapter of Basel III will decide not just how much capital they must hold, but how, where, and to whom they can lend.

As the U.S., EU, and UK move at different speeds, and in different directions, banks face a rare moment of strategic jeopardy. This is a capital debate, a competitive race and a market reshaping exercise all at once.

America’s long goodbye to certainty

The United States is approaching Basel Endgame with the caution and complexity that comes with a 4,000-bank system. For institutions above $100 billion in assets, the reforms promise a sweeping recalibration of credit, operational and market risk capital. But the bigger story is the uncertainty: rules have been proposed, comment periods have been closed, and yet the final shape and transition timetable remain unsettled.

This hesitancy is not a novelty of the current administration. U.S. banks have consistently argued in Basel forums that capital hikes would erode their competitiveness, particularly against non-bank lenders. But these concerns are increasingly relevant, as private credit funds and fintech lenders, operating outside the Basel regulatory framework, have expanded rapidly. In doing so, they’re capturing credit demand that higher capital requirements make less attractive for traditional banks. The political challenge for regulators is balancing systemic safety with the realities of a fragmented banking landscape where “one size fits all” rules could weigh disproportionately on smaller institutions.

Under the draft framework, the output floor limits how far internal models can reduce risk-weighted assets, and operational risk is to be calculated on a standardized, business-indicator basis. But the real driver of boardroom debate isn’t the technical detail; it’s the lack of finality. Without certainty on calibration or phase-in, capital planning and strategic choices become less clear.

Europe’s imperative – and pain points

On the other side of the Atlantic, policymakers see little choice but to press ahead with caution. The EU and UK have planned phased rollouts of Basel reforms, although both have postponed key measures, mindful that misalignment with other major jurisdictions could affect their global competitiveness. Their timelines may differ from the U.S., but the direction is clear: implementation is a political and economic necessity.

That clarity comes with consequences. German lenders, long reliant on internal models finely tuned to the historically stable commercial real estate market, have enjoyed lower capital requirements than peers in more volatile jurisdictions. The Basel Endgame’s capital floor and revised valuation rules dismantle much of that advantage, forcing substantial increases in required capital.

The competitive edge has dulled, and a lending pullback has begun. Faced with higher capital charges, some banks are scaling back in areas where the risk-adjusted return no longer justifies the balance sheet commitment. This is particularly acute in sectors such as real estate finance, where the new capital cost can eclipse the economic benefit.

A new strategy map for global banks

Large banks are gravitating toward three strategies to adapt to this environment. The first is to raise new capital or retain additional capital, a step that may be commercially sensitive, especially for institutions with public-sector shareholders, as it may be dilutive to existing shareholders or otherwise impact investor return. The second is to retrench from business lines that have become capital-inefficient. And the third is to pursue capital relief transactions that free up the balance sheet without abandoning core markets.

Synthetic securitisations are one of the fastest-growing tools in this toolkit, allowing banks to transfer credit risk and release capital. Back-leverage structures, where a bank lends to a fund that finances the end-borrower, are another route to more favorable treatment under the rules. Some institutions are going further, establishing or acquiring non-bank lending arms to capture business without the Basel burden, echoing the model of DWS’s spin-out from Deutsche Bank.

This is fertile ground for non-bank lenders. Every retreat by a regulated bank creates an opening for private credit funds, insurers and asset managers. The rise of non-bank finance is both a cause and an effect of Basel reforms, accelerating a long-term shift in who provides credit to the global economy.

Strategic legal advice will define the winners

For global banks, understanding these shifts is a competitive necessity. The Basel framework runs to thousands of pages but the real questions are strategic: how will capital rules change market structures, and how should institutions adapt? Now is the time to distil the undercurrents driving regulation and linking them to asset-level realities in lending, securitisation and risk transfer.

Basel Endgame is a re-draw of the global lending map. Banks that master capital efficiency and align their strategies with the new regulatory landscape will gain a lasting competitive edge. Those that lag behind risk being left on the sidelines of the next banking cycle.

Get in touch to find out how your institution can navigate the change and seize early commercial opportunities.