Banking and Non-Banking Industries Worry: Basel III Endgame Threatens Consumers

In a proposal to implement new capital requirements known as “the Basel III Endgame,” the Federal Reserve, FDIC, and OCC aim to increase capital requirements for banks with $100 billion or more in assets. These changes would replace banks’ internal risk models with standardized metrics, increase capital ratios to incorporate unrealized gains and losses, and introduce new risk weights for credit assessment. However, banking and non-banking trade groups have expressed concerns over the potential negative impact on consumers, particularly low- and moderate-income (LMI) consumers, disabled consumers, and minority populations. These groups argue that increased capital requirements will lead to higher costs for loans and other financial products, causing consumers to turn to non-bank lenders and products, which may result in more predatory lending practices and difficulty in building credit. The Consumer Bankers Association (CBA) has proposed changes to the Basel III endgame proposal to balance safety and soundness with banks’ ability to lend to LMI consumers. Similarly, affordable housing, civil rights, and urban advocacy groups have warned of a “devastating impact” on efforts to increase homeownership in communities of color. Business groups, such as the Business Roundtable, have raised concerns about the potential reduction in innovation and economic growth. Although regulators estimate that covered banks could see an average increase in capital requirements of 16%, some projections suggest that the country’s largest banks could face increases of 25% or more. In conclusion, banking and non-banking groups have criticized the Basel III Endgame Proposal for its potential negative effects on consumers and call for further study of its impact before implementation.