Don’t wait to battle capital, regulatory demands

Two things suck the life out of banking: Excessive capital demands and over-regulation. .It is important that bankers and their supporters fight back against overreaching regulatory demands and calls for more capital. While regulations and minimum capital requirements are necessities, appropriate levels of both are a matter of judgment. Those exercising that judgment have varying goals. While bankers are typically looking for as much freedom as possible to execute on their business plans, government officials seek restrictions in to mitigate risk of losses which might have a public impact. High capital demands, of course, are a hedge against sloppy or inadequate exam and regulatory practices. They delay the damage that occurs when regulators don't look close enough or act soon enough at troubled institutions. .We should welcome the news that the Federal Reserve has rethought its Basel III proposal for new capital requirements. Federal Reserve Vice Chair Michael Barr announced last month it will propose new, apparently less demanding requirements. Regulators will still require more capital, but much less than they proposed about a year ago with the failures of Silicon Valley Bank and two others still fresh in everyone's mind. The Fed's proposal is most directly important for the nation's largest banks, but community bankers need to pay attention, too, because rules and requirements have a tendency to trickle down. .Comptroller Michael Hsu commented last month on the evolving nature of bank supervision, noting the challenges that will emerge as the largest banks get even bigger. There is already a growing movement against financial institutions that are perceived to be "too big to manage," and Hsu's concerns perhaps provide validation. Clearly, as the number of institutions declines, the average size of financial institutions grows..It's almost a "perfect storm" for the banking industry, with smaller institutions most vulnerable because as institutions grow in size, calls for greater capital — even at the de novo level — are likely to grow. The startup capital requirements for a new bank are already so high that almost no new banks are being organized. Remember that pre-2008, 150 bank startups per year was not unusual..While the headlines in your newspaper or on your social media feed will typically be about the biggest banks, which are generally outside the journalistic scope of this magazine, the community banks that make up some 90 percent of the industry will eventually feel the impact of new rules. If you wait until your bank is immediately threatened to speak up, it may be too late.