Opinion: Well-intentioned bank rule would hurt lending to small businesses in Wisconsin

Wausau Mayor Katie Rosenberg says the Federal Reserve should reconsider a move that could also make home ownership harder.

I have been humbled to serve as Mayor of Wausau and I took an oath to protect my constituents from harm, even when that harm may stem from an otherwise well-intentioned act.  

This is why I must share my concern about the impact of a recent proposal by the Federal Reserve to increase capital requirements on banks. This proposal could have a devastating impact on my constituents. While at face value, increasing capital requirements as a safety precaution against economic disaster seems to be a commonsense practice, a deeper look into the proposal reveals it is completely unnecessary and will be extremely detrimental to our small businesses if adopted. 

I admire federal regulators for working to make sure that our banking system is sound, but as Treasury Secretary Janet Yellen said, “The American banking system is really safe and well-capitalized, it’s resilient.” Our requirements are higher than most European countries, and annual stress tests have shown that our capital levels provide plenty of buffer in the case of an economic crisis. It is clear that any increase is simply unnecessary, and the harm that would potentially follow is not worth it. And here’s why. 

In Wausau, we have witnessed firsthand how banks have been instrumental in supporting small and medium-sized businesses, helping them thrive and create jobs within our community. For this I am thankful. However, by imposing higher capital requirements on banks, we risk stifling their ability to provide critical financial services thus jeopardizing our progress. 

Increasing capital requirements may hinder banks’ willingness to extend credit to entrepreneurs and potential homebuyers as stated in a recent paper published by the Urban Institute. This, in turn, could deter investment in our community and potentially hinder the American dream of homeownership.  

What is even more alarming is the potential impact on minority communities. Historically, people of color have faced barriers to accessing banking services and capital. Raising capital requirements could exacerbate these disparities by making it even more challenging for minority-owned businesses and low-income individuals to secure loans and financial assistance. We must be mindful of the unintended consequences that such policies might have on marginalized communities. 

I ask that our leaders in Washington take another look at this proposal keeping in mind small towns like Wausau. The White House has made great progress in bolstering the economy and lowering inflation, but if finalized, this proposal threatens to undo that work. I’m calling upon our legislators in Congress to stand up in opposition to this proposal and urge the Biden Administration to do the same. We should not have to compromise our right to securing economic prosperity for an unnecessary overstep in banking regulation.