When will someone of important stature fundamentally question current bank regulations?
Sir, I refer to “Federal Reserve to loosen capital requirements for big US banks” Martin Arnold, FT March 12, 2026.
It mentions that Fed vice-chair for supervision Michelle Bowman has said the central bank will soon cut capital requirements for big banks, so as to loosen restrictions on Wall Street banks to encourage them to boost lending and regain market share lost to private credit groups. Here are my main observations:
First: Whenever capital requirements are lowered for big or small banks that means we other, depositors or taxpayers, have more skin-in-the-game of banking. That cannot be in the best interest of most of FT’s readers, unless all these own shares of banks.
Second: It should suffice to see how bank consolidation is proceeding, how many small banks have closed in the last decades. Do we really want to help the Big more? As I have always argued, the larger these are, the more it hurts when they fail.
Third: Bowman opines “Continuously increasing capital levels without a specific purpose imposes real economic cost,” ... “constrains credit availability, pushes activity into the less-regulated nonbank sector and layers on complexity and costs without meaningfully enhancing safety and soundness”. No! What “pushes activity into the less-regulated nonbank sector” is the fact there are different capital requirements for different bank assets, which empowers dangerously creative financial engineers to expulse/hide risk in the shadow markets. Precisely what happened in 2008 with the AAA rated MBS and AAA rated AIG’s default insurance exploded.
Fourth: Bank lobbyists warn that the rules would hurt American consumers by cutting lending and raising credit costs. Yes, they are bank lobbyists. The truth is that as long as the risk weighted bank capital requirements prevail, on the margin where it most matters, it is those who are perceived or decreed risky, like the consumers, who are most hurt.
Not long ago I asked ChatGPT and Grok whether current bank regulations could be putting usury interest rates on steroids. They both answered Yes! Is that of no interest to your Sir?
PS. Should not anyone commenting about banks on the Financial Times, like e.g., Martin Arnold, disclose whether he is invested in bank shares or not?
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