Federal Reserve’s Powell: Smaller Banks to Be Exempt From New Capital Requirements

Federal Reserve Chair Jerome Powell announced in a Senate Banking Committee hearing on Thursday (June 22) that smaller banks with assets below $100 billion will not be affected by expected new rules requiring banks to keep more capital in the wake of bank collapses in March.

The capital requirements will mainly impact the eight largest U.S. banks, with the upcoming rules expected to apply the so-called Basel III international standards to banks within the $100 billion and $250 billion asset range. “There may be some capital increases for other banks. None of this should affect banks under $100 billion,” Powell added.

The exemption for smaller institutions is in contrast to previous remarks made by Powell around the need to tailor regulations for both small and midsized banks, a move criticized by the American Bankers Association (ABA) President Rob Nichols. “We have long believed that regulation should be tailored to a bank’s risk and business model, he said in a June 22 statement. “Arbitrary asset thresholds and changes not justified by rigorous data and evidence are a mistake that will only make it harder for banks of all sizes to meet the needs of their customers, clients and communities while driving financial activity to less-regulated nonbanks.”

Earlier this month, PYMNTS reported that small merchants are feeling the pinch and cutting back as greater lending scrutiny and high borrowing costs make obtaining new loans more challenging. The situation has left many small businesses hesitant to borrow, as interest rates for small-business term loans have increased 3.42 percentage points in the past year.

“They are definitely being more conservative,” Brock Hutchinson, chief executive officer of Big Frig, a South Dakota maker of coolers and drinkware, told the WSJ. “Things have tightened up.”

The WSJ report cited a Federal Reserve Board survey of senior loan officers that found that nearly 50% of banks acknowledged tightening loan standards for small businesses in the past three months, with more than half saying they expect to tighten them even further as the year goes on.