The biggest banks are using community bankers to front for the self-interest of Wall Street

[Celerity]

https://prospect.org/economy/2023-10-12-capitalists-against-capital-standards-banks/



In late July, the three major bank regulatory agencies proposed regulations that would modestly increase capital requirements for banks. The most immediate impact is on banks with assets of between $100 million and $250 million, which were previously exempted from higher capital standards. But all large banks would have to hold slightly more capital against loans and other investments. The regulations are blindingly complicated, based on complex formulas and risk-weights, but on average they will increase capital holding requirements for large banks by about 20 percent. These higher capital requirements are nothing but good, a reflection of changes that reformers have urged for decades. They will serve to dissuade speculative investments, since more of the bank’s own capital would be at risk. By reducing leverage ratios, they will reduce risks.

The requirements explicitly do not affect community banks with assets under $100 million, the kinds of banks that do not pose systemic risks in the event that they go bust. On the contrary, when the speculative activities of big banks cause a major collapse, as in the 2008 financial crisis, government typically bails out the largest banks but lets the community banks go under. Some 400 community banks failed between 2009 and 2011, mostly through no fault of their own but because the crisis caused by the large banks put their collateral underwater. An epic example was ShoreBank of Chicago, the model community development bank, which served small businesses and homeowners on Chicago’s mostly Black South Side.

ShoreBank did not go in for subprime mortgages, but the subprime crisis destroyed property values on the South Side. The Treasury could have saved ShoreBank for a tiny fraction of what it spent bailing out Wall Street. But ShoreBank and other community banks were not too big to fail; they were too small to matter. So better capital standards for large banks are very much in the interest of community banks. Yet the community banks and small businesses have been used as fronts for the biggest banks in the industry’s hysterical lobbying campaign to roll back the mildly higher capital standards.



I recently received a hilariously revealing email from a PR firm working with Goldman Sachs. The sender must have lazily sent it to any journalist working on financial issues. The email, from Ben Sheidler, a principal of the CGA Group, touts a front group created by Goldman called Goldman Sachs 10,000 Small Businesses Voices. Sheidler repeats the large-bank talking points, warning that higher capital standards will reduce access to investment capital. In his words, this would squeeze smaller borrowers, make borrowing more expensive to smaller businesses, and even “diminish global competitiveness,” ignoring that banks in other nations will be subject to comparable capital standards under the international Basel Accords, which the regulation on capital standards carries out.

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[leftstreet]

1. DURec