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Bank Regulations Threaten Main Street Lending
U.S. Chamber of Commerce
Federal bank regulators could make it harder for businesses to get a loan or other forms of credit under a set of proposed rules - called "Basel III Endgame" - that would increase the amount of capital banks need to hold. The Chamber brought together two lawmakers and a Federal Reserve Governor to examine the potential negative effects of the proposed rules.
Why it matters: If banks are required to hold more capital, they would have less for lending. Businesses, particularly small businesses, would have less access to the financing they need to expand, innovate, and hire.
Details: The proposed regulations would have real implications for Main Street businesses.
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Small businesses: A small business could end up paying more in interest than a large company simply because one is publicly owned, and the other is privately held. "How will the entire business ecosystem readjust to these bank capital requirements? Rep. Bill Foster (D-IL) asked. "There'll be all kinds of unanticipated effects."
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Commercial real estate: The rule could increase capital requirements on commercial real estate lending. Business tenants may reduce their leased space or exit their leases. "There's going to have to be a lot of refinancings at higher rates," noted Rep. Andy Barr (R-KY). "We need the banking sector to be resilient."
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Farmers: Many farmers use financial products to protect themselves from unexpected changes in the price of crops and livestock. If banks keep more money on hand, these products will become more expensive or less available. "Farmers, ranchers, and agricultural producers that use derivatives to hedge price risks have noticed that the increased cost of providing these services from the proposal could lead banks to limit their ability availability," Federal Reserve Governor Michelle Bowman noted.
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Bottom line: Regulators must study the costs of these rules and rework them so they support business and economic growth.
Dig deeper:
Endgame for Main Street Lending
How New Banking Rules Might Harm Your Business
Protect Main Street Lending
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