The rapid succession of bank failures last spring clearly spooked federal regulators at the FDIC, the Federal Reserve Board and bank depositors. The bad decision-making at Silicon Valley Bank, Signature Bank and First Republic Bank caused the regulators to implement emergency life preserver measures to banks and conjured up memories of the 2008 financial crisis.

But as the saying goes, in Washington a crisis is always a terrible thing to waste, and so we are seeing a reflexive response for more government intervention. No surprise that Senate Democrats immediately pounced into action, calling on federal regulators to add another layer of rules including a complex increase in capital requirements on the U.S. banking system. Reacting quickly, the Federal Reserve, with the Office of the Comptroller of the Currency and the FDIC, released a joint proposal for the U.S. implementation of the “Basel III regulatory framework.” These are complex rules, but in a nutshell, these rules would increase the amount of money that banks hold in reserve by 25%.

Sorry, this WON’T stop occasional bank failures of the hundreds of banks in America. What it will do is choke off lending to small businesses, homebuyers and consumers who need loans.

Updated: Tue Jan 16, 2024