By Georgia State Representative Billy Mitchell (District 88)
As a State Representative I am honored to have spent my career shaping critical policy discussions and advocating for transformative change for everyone, but particularly for marginalized groups who face barriers to progress. I strive to leverage my position to sound the alarm about policies I believe risk undermining the strides we’ve made in promoting economic equity for Black Americans. As such, I feel compelled to address a pressing issue: the proposed increase in capital requirements for banks currently under consideration by the Federal Reserve Board.
Despite aiming to fortify the financial system, the proposal being considered by the Federal Reserve would require banks to maintain larger capital buffers to mitigate potential risks. The plan is part of a broader effort to ensure our banking sector is thoroughly capable of withstanding future economic shocks; however, our banking system has proven its resilience time and time again.
After the 2008 crisis, federal regulators passed policies aimed at safeguarding our banking sector. These policies included raising capital levels, which led to our banks already holding more capital than their European counterparts, and annual stress tests, which our banks have passed each year by demonstrating they would be able to weather any economic crisis which may arise. Furthermore, our banks were able to help us through the real-life stress test that was the COVID-19 pandemic, demonstrating their ability to handle unimaginable stress.
Though well-intentioned, this proposal could inadvertently harm the very communities they aim to protect by reducing the affordability and accessibility of credit. This proposal would label some mortgages with less than 20% down payments as risky, causing banks to have to hold more capital against those loans. That means it would become more expensive for lower income borrowers to take part in the American Dream of buying a home and building wealth. With rising home costs, the last thing we need to do is take action that would make banks even more selective about who they lend to or make it more expensive for borrowers to purchase homes.
The unintended consequences of an increase in capital requirements could pose a significant threat to Black individuals and communities by exacerbating existing disparities and hindering economic advancement. Minorities have faced systemic barriers to accessing financial services and capital making it more difficult to build generational wealth. Increasing capital requirements for banks could further restrict their access to credit and loans, impeding their ability to start businesses, purchase homes, or invest in education, thus perpetuating racial wealth gaps. The unintended consequences of increasing capital requirements could be devastating, potentially reversing hard-won gains in access to credit and economic opportunities which are crucial for our community’s advancement. That’s why it’s imperative leaders at the federal level strongly consider the potential consequences of the proposed increase in capital requirements on minority communities and stand against these potentially harmful changes. As policymakers continue to navigate these challenges our commitment to achieving a more equitable financial system must persist to genuinely advance equity and economic opportunities for all.
Last updated on August 1, 2024
