Ahead of tomorrow’s Senate Banking Committee hearing with the chief executive officers of national banks, I wanted to bring to your attention the continued reaction from a variety of stakeholders across the country, warning of negative consequences from Washington’s capital regulation plan. From how this rule will impact American homebuyers to small businesses and consumers, Main Street will feel the impact of this regulation.  

Below is what people are saying:

President of the Muskogee County NAACP Wane Hailes noted how the ability to buy a home for minority homebuyers will become more difficult under the proposed capital requirements: "The problem is in the proposal’s unintended consequences for Black borrowers. Under the Fed’s proposed framework, banks are required to hold even larger capital reserves, which, in turn, will lead to banks becoming excessively cautious when granting loans. Both history and recent analysis tell us that this added caution will disproportionately impact minority borrowers – adding financial barriers for those we should be aiming our focus at helping." (The Courier, 11/23/2023)

Brooklyn Park, MN Mayor Hollies Winston expressed how the capital requirements would exacerbate racial disparities: "Families in my community already have difficulty accessing credit. The proposed actions by the Federal Reserve will make the situation worse, especially for Black Americans seeking to buy a home. A recent study reflected the racial disparity that the new rules would have on borrowers. The risk weighting for low down payment mortgages for Black borrowers would go up almost 12 percentage points, compared to just 4.8 percentage points for their White counterparts." (Minnesota Spokesman-Recorder, 11/9/2023)

Laurie Goodman, fellow and founder of the Housing Finance Policy Center at the Urban Institute, and Jim Parrott, a nonresident fellow at the Urban Institute, highlighted the negative impact on the mortgage market from the proposal: "First, the proposal would apply new risk-weights, operational risk requirements and stress testing to mortgages held on portfolio that would more than double the capital that large lenders must hold against loans with high loan-to-value ratios. This is much higher than what is required to cover the risk, and would disproportionately impact lower-income borrowers and borrowers of color." (Housing Wire, 11/7/2023)

Lisa Rice, President and CEO of the National Fair Housing Alliance expressed concern about the impact Washington's capital regulation plan will have on consumers: "The proposed capital rule for example, I could see it literally squashing any efforts by lenders to stand up special purpose credit programs. So I am hoping that the federal regulators will take a deep look at that and really revamp the capital rules similar to what they did with the Community Reinvestment Act Rule." (National Housing Conference, 11/3/2023)

Wayne County Commissioner Jonathan C. Kinloch stated that stricter capital requirements will jeopardize Black business development: "The rule would have an especially concerning impact on Black business owners’ access to credit, with one study finding that Black business owners are already three times as likely as white business owners to have the profitability of their company hurt by a lack of access to capital. Instead of narrowing this gap, the proposal from the Federal Reserve would make it worse." (Michigan Chronicle, 11/23/2023)

Jim Smith, former mayor of Helena, MT, expressed concerns that the proposal could have drastic effects on Montana's small businesses, farmers, and ranches: "It is important that the full board of governors reconsider the impact of this rule on farmers and ranchers. Many are already struggling under increased costs for fuel, electricity, seeds, feed, and labor. While the Federal Reserve gets some credit for fighting inflation without putting the economy into a recession, all that work could be undone by a rule that could put credit out-of-reach for many small businesses, including the 21,000 farms and ranches here in Montana." (Daily Montanan, 11/20/2023)

Rep. Francesca Hong, from the Wisconsin State Assembly, argued that increases in bank capital regulations would hurt small businesses: "It’s essential that we rebound by creating a financial environment that allows small businesses to thrive here in Wisconsin and across the country. Unfortunately, a proposal from the Federal Reserve aimed at increasing capital requirements for banks would do the opposite—ushering in regulations that would make it harder for small businesses to grow, especially minority-owned small businesses that bore the brunt of the pandemic’s impact." (Wisconsin State Journal, 11/4/2023)

Third Way urged financial regulators to consider how increased capital requirements might affect small and minority-owned businesses: "Lawmakers and regulators need to make sure that future reforms adequately balance stability with economic growth. Small business owners face numerous barriers to accessing capital and need more opportunities to thrive. As it considers comments on the new proposed capital requirements to keep our banking system safe, we urge the Federal Reserve and banking regulators to pay particular attention to credit access and affordability for small and minority-owned businesses." (Third Way, 11/13/2023)

Mario H. Lopez, President of The Hispanic Leadership Fund, warned that increasing capital requirements would disproportionately affect low-income borrowers: "This reduction in available credit could kick many Americans while they are down, increasing their credit utilization and potentially hurting their credit scores. In this way, the Biden administration's plan is harmful to individuals struggling to make ends meet." (American Banker, 10/4/2023) 

The U.S. Chamber of Commerce urged federal regulators to reconsider the rule, arguing that it would make the U.S. economic environment worse for Americans: "Businesses will be confronted with either higher costs or fewer options in nearly every product and service they access from affected banks. For example, small business loans will be more expensive given the proposed rule requires banks to hold more capital against credit exposures from companies that are not publicly listed. The housing sector could be stifled due to restrictions in mortgage credit. Loans to companies and households for renewable energy investments will be more expensive because the proposal disfavors certain tax credit programs like provided in the Inflation Reduction Act." (U.S. Chamber of Commerce, 11/14/2023)

Bloomberg Opinion editors argued that the proposal does not adequately address capital risks: "The proposal also raises the amount of capital needed to fund mortgages, especially in cases where the loan is for more than 80% of the home’s value. The logic is clear—banks are at greater risk of taking losses on such loans. But the higher capital charge could lead them to pull back on lending to low- and moderate-income borrowers, including people of color. That would contravene the regulators’ stated purpose. (...) These are just a few of the complications that arise when regulators try to micromanage banks’ balance sheets. More are likely to be revealed. The truth is that no risk-weighting is perfect; the relative risk of assets changes by the hour." (Bloomberg Opinion, 11/20/2023)

Michelle Bowman, member of the Federal Reserve Board of Governors, argued against proposed bank reforms, stating that they are disruptive and do not strengthen the financial system. "At a time when confidence in public institutions is waning, the Federal Reserve should strive to demonstrate beyond doubt that it executes its duties in an independent manner, focusing on its statutory obligations. I fear that many of these actions may fall short of this objective." (MarketWatch, 11/7/2023)