By Hugh Carney
ABA Viewpoint
Hugh Carney is EVP for financial institutions policy and regulatory affairs at ABA.
The Trump administration has made clear that lowering the cost of living for American households is a top economic priority. That focus creates an important opportunity for the federal banking agencies as they consider how to move forward with mitigating the regulatory burden banks face and specifically the Basel III “endgame,” or B3E, proposal. Capital rules are not abstract regulatory exercises. They directly influence the price and availability of credit that families, businesses, and communities rely on every day.
Banks are the primary drivers of economic growth in the economy. When capital requirements are set too high or calibrated without regard to how they will impact borrowers and the overall economy, the result is predictable and straightforward: credit becomes more expensive and less available. The costs of miscalibrated and overzealous capital requirements are ultimately borne by borrowers — including farmers buying seed and equipment, small businesses and startups seeking working capital, families purchasing their first homes and communities financing infrastructure and utilities — creating an economic drag.
That dynamic has real world impact. A wide range of commenters warned that the misguided 2023 B3E proposal would have raised costs and limited access to credit across the economy. Agricultural organizations cautioned that higher costs and reduced availability of clearing and credit services would disproportionately harm farmers, grain elevators, and rural communities, with higher costs flowing through the food supply chain. Small business advocates similarly warned that increased capital requirements would make lending more expensive and restrict access to affordable credit.
Housing and household affordability concerns were also a central theme. Civil rights, housing, and consumer groups warned that the proposal would undermine efforts to expand homeownership, particularly for first-time, first-generation, Black and Hispanic homebuyers who lack access to generational wealth. Independent analysis suggested that the proposed capital levels exceed what would be needed even under severe economic stress and would disproportionately disadvantage low-to-moderate-income borrowers and communities.
The impacts would extend well beyond farmers and households. Utility companies warned that higher financing and hedging costs would be passed directly on to customers in the form of higher monthly bills. State and local government finance officials cautioned that increased capital requirements would raise borrowing costs for municipal issuers and reduce liquidity in municipal debt markets. Manufacturers and infrastructure advocates warned that higher bank regulatory costs would limit access to funding for major projects, undermine U.S. competitiveness, and slow investment. Clean energy groups raised concerns that higher capital charges would make tax equity and other financing prohibitively expensive, putting billions of dollars in energy investments at risk. Public pension funds and insurers also warned of higher costs that would ultimately be borne by retirees and policyholders.
Taken together, these comments reinforce a simple point: Capital policy is economic policy. As the banking agencies consider next steps on the B3E, they have the opportunity to align prudential objectives with the nation’s cost of living goals. That means carefully calibrating capital requirements to actual risk, avoiding unnecessary increases that constrain lending, and recognizing that a strong, well-functioning banking system is essential to making credit affordable and widely available.
Lowering the cost of living does not stop at grocery prices or energy bills. It depends on ensuring that credit remains accessible and reasonably priced for the millions of Americans who rely on banks to finance homes, businesses, infrastructure and retirement.
ABA Viewpoint is the source for analysis, commentary and perspective from the American Bankers Association on the policy issues shaping banking today and into the future. Click here to view all posts in this series.
