You may have seen an opinion piece in today's Washington Post arguing that regulators should "ignore" the concerns being raised about Basel III Endgame proposed rule, as only "a few details" may merit reconsideration. This attempt to downplay the significance of the proposed regulation overlooks crucial details.

Contrary to what the authors claim, the Basel III Endgame proposal is far from modest. It will result in a 30% increase in capital requirements on the largest U.S. banks causing sweeping negative consequences on the economy.

• The proposal's operational risk changes are not minor—they would serve as a $1.4 trillion dollar tax on all products and services provided by large banks: The new operational risk capital requirements account for 78% of the total increase in required capital.
• The banks subject to the proposed capital increase account for 81 cents of every $1 of banking: The largest U.S. banks alone are significant contributors to the economy, holding $93 billion in small business loans and $811 billion in consumer loans, investing billions of dollars in CDFIs and MDIs, and meeting two-thirds of the funding needs of other financial institutions.
• Large U.S. banks have been a source of resilience during the regional bank crisis this year. Large banks have demonstrated that they're well-capitalized, as Federal Reserve Chair Powell has attested to: "We’ve benefited from a very strong, well capitalized banking system that’s much better at managing its risks than the one that entered the global financial crisis." (Federal Reserve Chair Powell, 2023)

The writers underestimate the full extent of how the rule would negatively impact the economy and Americans. For months now, voices from various industries have pointed to numerous issues throughout the 1,000+ page proposal, including:

• Low-income borrowers and borrowers of color will be hurt by changes to operational risk requirements: "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."  (Urban Institute fellows Goodman & Parrott, 2023)
• Small business owners will be burdened by reduced access to credit: "The small businesses that drive the U.S. economy and local economies throughout our nation are being hung out to dry as regulators ignore the underlying causes of recent bank failures. Lawmakers cannot stand by and allow these harmful policies to get rammed through to completion. The costs and pain will burden millions of Americans, whereas only the few banks and executives who failed their depositors and investors should be paying the price." (Karen Kerrigan, President and CEO of Small Business & Entrepreneurship Council, 2023)
• Farmers will have less access to credit: "We are very concerned that any contraction in the availability of clearing services will have a disproportionate impact on agricultural end users that are far outside the major financial centers, especially smaller entities such as grain elevators and family farms. We urge you to modify the proposals so that they do not disincentivize banks from providing this important service to their customers." (Commodity Markets Council, National Council of Farmer Cooperatives, National Cattlemen's Beef Association, et al., 2023)
• The Administration’s clean energy transition efforts will be jeopardized: "The treatment of tax equity in the proposed capital requirements is both unwarranted and particularly detrimental to [Inflation Reduction Act]-incentivized projects." (American Council on Renewable Energy, 2023)
• Impacts on derivative markets could stunt innovation: "More of the capital that would otherwise be used for productive economic purposes such as loans to businesses or helping manage risk through derivatives will have to sit idly at banks. So, if you're an entrepreneur looking to start a new business or an existing business looking to obtain financing to expand, there will be fewer financing options, and at higher prices." (U.S. Chamber of Commerce, Hulse, 2023)

These are just a few of the issues being raised by concerned Americans, small-business owners, and advocates across the political spectrum. Regulators can’t address these concerns with simple tweaks. They need to go back to the drawing board.