Wall Street’s major banks are turning on one another as the Federal Reserve approaches the final stage of its overhaul of U.S. bank capital rules. A dispute over how regulators measure short-term wholesale funding has split four of the country’s largest lenders, highlighting how changes intended to make capital requirements more risk-sensitive can produce sharply different outcomes across business models.

Why the GSIB Capital Dispute Matters

At the center of the conflict is the Federal Reserve’s capital surcharge for global systemically important banks, or GSIBs. The March proposal would revise the treatment of short-term wholesale funding, including repo and commercial paper, which regulators consider vulnerable to rapid withdrawal during periods of market stress. While the broader reform would reduce capital requirements, the proposed funding adjustment would redistribute some of that benefit among the largest institutions.

JPMorgan estimates that the change would reduce its potential capital relief by about $13 billion, while Bank of America would miss out on roughly $9 billion. Goldman Sachs and Morgan Stanley, by contrast, could each receive an additional $1 billion to $2 billion in relief. The divergence reflects different funding structures: 2026 federal data cited by Reuters show short-term wholesale funding at 37% of Morgan Stanley’s liabilities and 30% at Goldman, compared with 24% at Bank of America and 21% at JPMorgan.

Business Models Drive the Wall Street Divide

The disagreement illustrates a broader tension in U.S. banking regulation. JPMorgan and Bank of America rely more heavily on deposits and argue that the proposed formula could unintentionally favor trading activity over traditional lending to households and businesses. JPMorgan has warned that the change could constrain lending capacity while creating incentives for banks with greater wholesale-funding exposure.

Goldman Sachs and Morgan Stanley have taken the opposite position, arguing that the revised calculation would better reflect actual risk and improve transparency. Morgan Stanley has also argued that lower capital requirements for Treasury-market activity could support liquidity in government bonds, an important consideration because Treasury yields influence financing conditions throughout the U.S. economy.

Fed Decision Could Shape the Next Regulatory Cycle

The timing adds another layer of significance. The Federal Reserve is seeking to complete the overhaul before year-end, while political scrutiny of financial regulation could intensify if Democrats regain control of the House of Representatives next year. Fed Vice Chair for Supervision Michelle Bowman has reportedly encouraged banks to limit aggressive pushback, suggesting policymakers may remain relatively close to the current proposal.

The GSIB surcharge was introduced after the 2007–2009 financial crisis as a safeguard against systemic risks at the largest banks. Its proposed revision therefore carries implications beyond individual institutions: regulators must balance the objective of reducing regulatory burdens and supporting economic activity against concerns that lower capital buffers could increase vulnerabilities during market stress.

For investors and policymakers, the next stage will center on whether the Fed modifies the wholesale-funding provision before finalizing the rules. The outcome could influence how capital is allocated between lending, trading and liquidity management across the U.S. banking system. It will also provide a signal about the Fed’s broader approach to financial stability, particularly as banks prepare for a regulatory framework that could remain politically contested into 2027.