Proposed Bank Capital Rules Could Restrict Lending and Economic Growth
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Proposed Basel III capital rules would significantly increase capital requirements for US banks' trading activities, negatively impacting liquidity and increasing costs.
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Industry analysis found the rules would increase trading risk-weighted assets by 129%, not accounting for overlap with stress testing rules, leading to over-calibration.
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Increased costs would make financing more expensive for businesses and consumers, reduce hedging capabilities for companies, and negatively impact economic growth.
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The rules contrast with more risk-sensitive approaches in the UK and EU, even though their economies rely less on capital markets financing.
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Regulators should re-propose the rules to explicitly define problems addressed, provide economic analysis on impacts, and adjust requirements to actual risks posed.