The federal government’s Basel Endgame proposal will have real costs for everyday Americans. These capital requirements will create a drag on our economy for years to come — and will hurt working families and small businesses.
The recently unveiled proposal from the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency aims to require financial institutions to hold significantly higher capital, as much as 16–19% more, depending on the size of the institution. This would limit banks’ capacity to offer things like mortgages, car loans, credit cards and small-business loans.
For many, the dream of owning a home will become more elusive, as the proposal drastically increases the capital charge for home mortgages with lower down payments, putting homeownership further out of reach for many buyers.
Small businesses will struggle because the proposal will make it harder to obtain financing, meet payroll and support their local communities.
Regulators claim this is necessary to protect the stability of the financial system, but it will have real consequences for families and small businesses across the country.
When capital requirements are set excessively high, it makes it much harder to secure a loan or credit — this is especially true for working families and small businesses.
Instead of increasing stability, this will increase risk by creating market instability outside of regulators’ reach and pushing consumers to unregulated, more expensive financial services products. Private equity and hedge funds are exempt from the Basel requirements, and they will reap the benefits of diverted banking demand, driving higher consumer costs and greater market instability.
The capital requirements set by the Federal Reserve will have a dramatic effect on the U.S. economy. Studies show that every percentage point increase in capital requirements slashes about $42 billion of domestic output per year.
The banking agencies should engage in a robust and thorough economic analysis of the proposal’s effects. Federal agencies need to go back to the drawing board and ensure that future policy allows millions of low-income Americans and small businesses to thrive.