Regional Banks Press Case for Capital-Rule Rollback

Regional bank executives took their case to Capitol Hill this week, arguing that capital requirements designed for globally systemic institutions are strangling lending at banks a fraction of their size. Their target is the enhanced framework applied to banks above $100 billion in assets after the 2023 failures — a threshold executives say sweeps in traditional lenders with none of the trading exposures the rules were built to police.

The banks’ data point in chief: small-business loan originations at affected regional lenders have fallen 12 percent since the rules took effect, even as originations at exempt community banks and non-bank lenders rose. "Every dollar of required capital is a dollar that cannot back a loan on Main Street," one chief executive told the Senate Banking Committee.

Free-market economists add a structural argument. Pushing lending out of regulated banks into private credit funds does not reduce risk, they contend — it relocates risk to entities with less supervision, less deposit protection, and higher costs of capital that borrowers ultimately pay.

Defenders of the framework counter that regional banks were precisely the segment that failed in 2023, and that the lending decline owes more to rate conditions than capital rules. Consumer groups warn that the rollback coalition includes institutions with concentrated commercial real estate exposure that current rules are appropriately flagging.

Regulators have signaled openness to "tailoring refinements" without committing to thresholds. A proposal is expected this fall — timed, banking lobbyists note with some satisfaction, ahead of an election year in which small-business credit plays well in every district.