We don’t know whether our UP study by Stephen Moore and David Malpass on the proposal made the difference, but we did submit it to the Fed, and Michael Barr, the Vice Chair of the Federal Reserve Board, has dramatically changed his tune.

The once chief cheerleader for the most heavy-handed possible approach, Barr sounded like he was paying attention to our warnings in his speech at Brookings yesterday:

But capital has costs too. As compared to debt, capital is a more expensive source of funding to the bank. Thus, higher capital requirements can raise the cost of funding to a bank, and the bank can pass higher costs on to households, businesses, and clients engaged in a range of financial activities. These activities are critical to a well-functioning economy that works for everyone.

This is a partial victory. The new version still increases aggregate capital requirements – but by 9% instead of the originally proposed 19%.

At the same time the Biden administration says it wants  more loans for mortgages and small businesses, its regulators are enacting new  rules to inhibit bank lending.