Capstone believes that prudential regulators will continue to lift the regulatory burden for banks of all sizes in 2026, even as they consider new stablecoin regulations that pose competitive threats to smaller banks. We expect the release of a “capital neutral” Basel III Endgame proposal and do not expect Congress to pass legislation to adjust deposit insurance thresholds.

Outlook at a Glance

• FDIC Deposit Insurance: House Republicans Likely to Remain Opposed to Higher Deposit Insurance Thresholds
• Stablecoin Implementation: GENIUS Act Rulemaking, Master Account Access, and Trust Charters All to Impact the Level of Competition Posed by Stablecoins to Banks 
• Finally! Basel III Endgame: Basel III Endgame Rules That Aim for Capital Neutrality to be Released
• Regulatory Relief: Prudential Regulators to Continue to Provide a Mix of Supervisory and Capital Relief to Banks of All Sizes

FDIC Deposit Insurance: House Financial Services Committee Leadership a Continued Roadblock to Deposit Insurance Reform

Winners	Deposit Placement Networks Firms
Losers	N/A

Capstone remains skeptical that deposit insurance reform—specifically increasing the maximum insured amount for non-interest-bearing transaction accounts—is possible with the current leadership on the House Financial Services Committee (HSFC). The current deposit insurance reform conversation has its roots in the collapse of Silicon Valley Bank in 2023 and in a subsequent Federal Deposit Insurance Corporation (FDIC) report endorsing higher deposit insurance limits for business transaction accounts. Despite the mini-banking crisis and the FDIC’s apparent support for reform, legislators remained largely uninterested in passing reform, and the banking lobbies remained divided on the need for change. In 2025, however, support for deposit insurance reform picked up in the Senate and within the community banking lobby.  Most notably, Sen. Bill Hagerty (R-TN) and Sen. Angela Alsobrooks (D-MD) proposed the “Main Street Depositor Act” (S.2999), which would provide up to $10M in deposit insurance coverage for noninterest bearing transaction accounts. Globally systemically important banks (G-SIBs) and any “insured branch of a foreign bank” would be excluded from the new coverage. The bill, which was initially slated for inclusion in a defense spending package and began with higher coverage limits, was endorsed by the Independent Community Bankers Association (ICBA). In a Senate hearing on the topic, both Democrats and Republicans spoke generally in support of reform. Leadership in the HSFC, however, threw cold water on S. 2999 during a November hearing on the topic. HSFC Chair French Hill (R-Ark), who has previously expressed concerns about moral hazard and higher deposit insurance limits, voiced skepticism surrounding a new $10 million insurance limit and advocated for a more holistic approach to deposit insurance changes. Others voiced skepticism about the potential assessment costs and implementation timeline for the Hagerty/Alsobrooks bill. Given the lack of alignment within the HSFC and the apparent unwillingness to move forward with deposit insurance reform as a piece of stand-alone legislation, we view the likelihood of change in 2026 as remote, barring another mini-banking crisis.

Stablecoins and Trust Charters: GENIUS ACT Implementation Decisions Will Impact Deposit Stability

Winners	Potential Stablecoin Issuers (CRCL)
Losers	Community Banks (<$10B in Assets)

Capstone believes that a series of regulatory inflection points, including rulemaking and trust bank chartering decisions, related to the GENIUS Act and the emerging regulatory environment for stablecoins, will shape the degree to which stablecoin issuance emerges as a competitive threat to bank deposit stability in 2026. Passed in July 2025, the GENIUS Act provides a regulatory framework for stablecoins; the legislation provides a regulatory definition for payment stablecoins, limits issuance of those coins to approved entities, defines the range of reserves required to back a stablecoin, and outlines a broad penalty regime for non-compliance. The Genius Act will become effective in 2027, or 120 days following the issuance of final rules outlining stablecoin regulatory parameters.

The banking community has long expressed concern that the contours of stablecoin regulation will have significant implications for the industry and the stability of its deposit base. Industry, particularly the community banking sector, is concerned that stablecoins introduce the risk that would-be deposits will be shifted into stablecoins and away from the banking system, eroding their deposit base and ability to lend. While the GENIUS Act seemingly addressed some of the industry’s concerns about potential deposit erosion, banning yield or interest for stablecoins, and leaving Federal Reserve Master Account access eligibility requirements untouched, the banking community remains concerned that the specifics of forthcoming regulation and friendly posture toward crypto firms under the current administration may enable issuers to skirt GENIUS Act protections.

While the GENIUS Act contains a prohibition on interest for holding stablecoins, a recent Advance Notice of Proposed Rulemaking (ANPRM) from the Department of Treasury asks if rulemaking should clarify the legislation’s shallow legislative text and further define the scope of yield or interest that will be prohibited. Banks are specifically concerned that issuers may provide rewards or other incentives to customers while remaining statutorily compliant with the Act’s yield/interest ban. Capstone expects that regulators will provide clarifying guidance to close perceived loopholes, but we will closely follow the exact language to determine how ironclad the ban on yield/interest will be. The ICBA recently released an analysis estimating potential deposit base erosion of ~$1.3T if crypto exchanges, affiliates, or other intermediaries are permitted to pay interest, yield, or provide rewards on stablecoin holdings.

Capstone is also closely monitoring ongoing developments in bank chartering for would-be issuers. We had generally expected issuers to partner with large banks to hold the reserves backing their stablecoins. The OCC, however, has conditionally approved several recent trust charter applications for likely issuers, allowing them to directly manage the reserve assets backing their stablecoins rather than park those reserves with bank partners. While trust banks do not manage deposits, stablecoin-issuing trust banks would likely use other acceptable reserves to back their coin. The trust charter approvals are conditional, however, and approved entities are required to build regulatory capital and remain subject to ongoing monitoring over the next 12 months before final approval. Hiccups in capital formation, deviations from the business plan, or identified deficiencies in the ongoing monitoring phase could derail final approval of would-be issuers’ charters. Additionally, we believe state regulators and trade groups may levy a legal challenge to the charter approvals. During the previous Trump Administration, state regulators sued to block a special-purpose fintech charter, though that suit was dismissed on standing grounds.

Finally, despite the OCC’s willingness to grant trust charters to potential stablecoin issuers, Capstone remains skeptical that the Federal Reserve will grant traditional master accounts to these non-depository institutions. While a trust charter grants additional legitimacy to potential issuers and subjects them to a higher degree of federal regulatory oversight, potential issuers will still be subject to a heightened Master Account review standard.  Concerns over stablecoin issuers’ access to Master Accounts were increased after Fed Governor Waller mentioned the potential for a “skinny” Master Account. That concern from the banking community seems well-founded after the Federal Reserve released a December 19^th request for information related to a limited Master Account focused on payments. Capstone believes that a limited “payments” Master Account could be utilized by issuers. While the full scope and capabilities of a limited Master Account have yet to be defined, and is likely a year or more away from rollout, it would likely reduce potential issuers’ reliance on partnerships with traditional financial institutions and heighten the risk of deposit-based erosion for banks pending consumer adoption and the broadening of stablecoin use cases.

Capstone will be monitoring each of these stablecoin inflection points – rules around stablecoin yields, the success of newly chartered trust institutions, and the Fed’s stance on master account access – as we consider the potential risk that stablecoins pose to traditional bank deposits. We believe community banks, in particular, are more acutely exposed to possible deposit erosion as they are less likely to partner with potential issuers to hold stablecoin reserves. Additionally, as mentioned in our 2026 Digital Assets preview, we believe large banks are likely to partner to issue their own stablecoin, creating a competitive alternative to crypto-oriented issuers.

Basel III Endgame Finally Released

Winners	Category I-IV Banks
Losers	N/A

Capstone believes that regulators will release a “roughly capital neutral” Basel III Endgame proposal in early 2026, which will be favorable to the Category I-III banks. The relaxation of the July 2023 Basel III Endgame proposal has been expected for some time, and we anticipate it will be unveiled early next year. We expect that the proposal, which was widely panned by industry in its initial form, will be watered down significantly across multiple capital frameworks, and ultimately be favorable to industry.

While Capstone is forced to speculate on the exact nature of the B3E rollback, we anticipate that the forthcoming proposal will include much or all of the following. Category IV banks ($ 100B-$250B in assets), which we swept up in the initial July 2023 rules package, will be largely exempt from any new rules. The operational risk framework, which was viewed as unfairly punitive to US banks, particularly those highly reliant on fee income, will likely be significantly softened. Specifically, the internal loss multiplier (ILM) and approach to fee income within the operation risk framework will be relaxed. Next, we anticipate that the gold-plated credit risk elements of the initial proposal will be removed in the forthcoming version. The original proposals’ risk-weighting for portfolio mortgages, equity financing, and retail risk weights (among others) will likely be relaxed. While we believe the market risk framework may be the most difficult to adjust downward, we do believe that the overall market risk approach will be partially relaxed, including better recognition of diversification benefits for capital calculations, adjustments to securities financing transaction rules and collateral minimums, and a more favorable approach to “non-modellable risk factors.”

Broadly, we anticipate that the revised rules will seek to harmonize the interplay between existing capital rules and stress tests, addressing the “double counting” concerns that banks have long levied against the current capital framework. The proposal, which will largely maintain the current status quo capital levels for banks, will likely have a long implementation timeline. Broadly, for banks that remain in a strong capital position, the capital-neutral Basel III proposal will support forward-looking capital planning and reduce the risk of highly punitive capital increase. Given the timing of the proposed release, early in the current administration, we do not expect issues with finalization before significant leadership turnover within the three prudential regulators.

Continued Regulatory Relief for Banks

Winners	All Banks
Losers	N/A

Capstone expects that prudential regulators will continue to seek opportunities to provide supervisory, capital, and reporting relief to banks of all sizes in 2026. Current leadership at the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the FDIC has consistently decried the regulatory burden faced by banks and adopted an industry-friendly approach to regulation and capital. We expect that industry-friendly approach to persist in the coming year, resulting in a relaxed regulatory burden for banks of all sizes.

We anticipate that the Fed will continue to move forward with a more moderate stress testing approach that provides modest capital relief to large banks. The Fed has proposed multiple stress-testing related rules, all of which we anticipate will be finalized in early 2026, in time for incorporation into stress capital buffers for impacted banks next summer. Specifically, we believe the Fed will finalize its plan to average stress test results over a 2-year period to reduce year-over-year volatility in the stress capital buffer. Further, we believe that the Fed will incorporate feedback on existing stress-testing models, giving banks greater insight into stress-testing processes and a greater ability to manage the resulting capital effects.

We expect that prudential regulators will continue to aggressively pursue regulatory tailoring initiatives, attempting to align supervisory and capital requirements with a bank’s level of complexity and the level of risk it poses to the financial system. Specifically, we expect regulators to consider linking existing capital and supervisory asset thresholds to inflation, going beyond recent FDIC rulemaking that raises multiple numeric thresholds for supervision and filing above current levels.

We also believe that the OCC will move forward with the revised definition of a community bank, which increases the asset threshold from $10B to $30B. Community banks will also benefit from a relaxation of the community bank leverage ratio, an alternative measure of capital adequacy. Under the current framework, banks that opt into the CBLR are required to maintain a 9% ratio; the new rules would lower the threshold to 8% and provide a more generous compliance grace period for banks that temporarily fall below it. We remain skeptical that there will be significant legislative change, despite Rep. French Hill’s “Making Community Banking Great Again” agenda in the House Financial Services Committee (HFSC).

Capstone anticipates that much of the above regulatory relief will be accomplished as part of the banking regulators’ ongoing Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) review. Every ten years, bank regulators are tasked with reviewing the existing regulatory framework and making targeted changes to outdated regulations. Fed Vice Chair for Supervision has specifically noted that previous EGRPRA reviews have been largely toothless, but that the ongoing review process will result in supervisory and capital tweaks.