Comments are almost due…

How banks deploy capital determines whether a small business owner gets a loan, whether a first-time homebuyer can afford a mortgage, and whether everyday Americans can access credit when they need it. With comments due on the new capital requirement proposals on June 18th, this is the moment to get the details right.

To recap:

• In March of this year, the Federal Reserve, OCC, and FDIC released a set of proposals meant to modernize bank capital requirements.
  • Federal Reserve Vice Chair for Supervision Michelle Bowman said at the time that the proposals "would meaningfully improve the bank capital framework by addressing duplicative overlaps, matching requirements to actual risk, and comprehensively addressing long-standing gaps in our framework."
• Following the proposals' publication, responses were broadly positive, with policymakers and experts highlighting the importance of right-sizing rules to support local economies.
  • The Chairman of the House Financial Services Committee said that "right-sizing bank regulation is critical to ensuring that capital standards are appropriately tailored to risk and do not impede lending at institutions that serve as the backbone of local economies," going on to say that he was "encouraged to see progress toward a more bipartisan approach that reflects these priorities."
  • The Small Business & Entrepreneurship Council called the new proposals' approach "especially important for America’s entrepreneurs and small business owners, who rely on sound regulation to ensure healthy capital markets and access to credit to grow their firms."

What happens next

Appropriately calibrated rules are critical, determining the degree to which everyday Americans and small business owners can access necessary funding. Capital is the lifeblood of the economy, and the rules governing how banks are allowed to deploy capital reverberate across everything from mortgage markets to entrepreneurship.

The bottom line

These proposals are a step towards modernized capital rules that balance dynamism and stability. Right-sizing requirements can mean more mortgages, more small business loans, and lower lending costs for consumers.

But the details will matter. That's why The Ledger Project is tracking commentary on these rules and looks forward to seeing what policymakers do with those comments.

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