Federal banking regulators are readying to propose a rule updating the US capital framework to finalize Basel III.

Federal Deposit Insurance Corp. Chairman Martin Gruenberg said in a June 22 speech that the agency, the Federal Reserve and the Office of the Comptroller of the Currency will soon issue the notice of proposed rulemaking. While Gruenberg did not say when the industry can expect the proposal, he provided insight into what it might include.

The agencies are considering applying the proposed rule to banks with more than $100 billion in assets, which was largely influenced by the recent failures of three regional banks, he said.

"If we had any doubt that the failure of banks in this size category can have financial stability consequences, that has been answered by recent experience," Gruenberg said, according to the prepared remarks. "The lesson to take away is that banks in this size category can pose genuine financial stability risks and the federal banking agencies need to review carefully the supervision of these institutions, particularly for interest rate risk in the current environment."

As an example, if Silicon Valley Bank was required to recognize its unrealized securities losses in its capital "it might have averted the loss of market confidence and the liquidity run. That is because there would have been more capital held against these assets," Gruenberg said.

Community banks will not be subject to the proposed rulemaking, he said.

While a proposal is on the way, banks that are subject to it will have time to comply as a rule will likely not be finalized until mid-2024, and the implementation period would be "several more years" after the rule takes effect, Gruenberg said.

As the agencies put the final touches on the coming proposal, they are focusing on four risk areas that relate to credit, markets, operations and financial derivatives.

The announcement from Gruenberg comes after The Wall Street Journal reported June 5 that the agencies could propose Basel III endgame rules by the end of June and are eyeing raising capital requirements by 20% overall.