In July 2023, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Federal Deposit Insurance Corporation (“FDIC”), and the Office of the Comptroller of the Currency (“OCC”) issued a proposed regulation (the “Capital Adequacy Rule” or “Rule”) overhauling the methods for large financial institutions to calculate their risk-based capital requirements.

These federal banking agencies claim authority to issue the Capital Adequacy Rule—a rulemaking that is so impactful that experts estimate it will reduce the annual GDP of the United States by $67 billion each year—under various statutes broadly empowering them to require banks to maintain “adequate capital.”

This claimed authority raises serious questions about whether such a broad delegation of power from Congress is consistent with the U.S. Constitution. Although the Capital Adequacy Rule is likely constitutional under the existing nondelegation
doctrine, a majority of the Justices on the Supreme Court have indicated a desire to revisit that doctrine and strengthen it consistent with its original understanding. Doing so would likely rein in sprawling delegations that leave important policymaking in the hands of administrative agencies.

Under the doctrine as originally understood and correctly applied—and as envisioned by those Justices—there are strong arguments that the Capital Adequacy Rule is not constitutional.