Capital rules, rates and bank exposures set agenda

Regulatory proposals would shift risk weights and tailoring thresholds. One proposed capital package would reduce the senior securitization risk-weight floor from 20% to 15% and lower the standardized-approach corporate-loan risk weight from 100% to 95%, potentially increasing banks’ appetite for private credit-related assets. Separately, the TIER Act introduced by Sen. Katie Britt would raise certain statutory bank regulatory thresholds and require periodic updates tied to economic growth.

Barr and ABA economists leave another hike in view. Federal Reserve Gov. Michael Barr said further policy adjustments are likely after the Federal Open Market Committee raised the target range to 3.75%-4%. ABA’s Economic Advisory Committee expects one additional federal funds rate hike in Q4 2026, solid U.S. growth through 2027, inflation above the Fed’s 2% target and mortgage rates above 6.8% over the next year.

WestStar Bank agreed to buy Southwest Capital Bank. No financial terms were disclosed; the deal is expected to close in Q1 2027 pending approvals. The combined bank would have about $3.8 billion of assets and $3.3 billion of deposits, with WestStar gaining six New Mexico branches.

Canada’s six largest banks announced a joint tokenized-deposit project. The Canadian-dollar project’s first phase aims to move tokenized deposits across Canadian financial institutions. The announcement came 12 days after OSFI said tokenized deposits are not legally distinct from traditional deposits.

Professor estimate puts banks’ AI-infrastructure exposure near $800 billion. American Banker cited a Columbia finance professor’s estimate that banks have lent about $800 billion to businesses building AI-related physical infrastructure. The article warned that even a modest slowdown in AI demand could push borrowers into distress, pressuring bank capital and lending capacity.