Most of the time we don’t pay much attention to changes in the banking industry. When things like new policies come out or when banking rules change, most people don’t figure it really affects them. That may be true in some cases, but not always. A recent proposal most definitely will affect regular folks like us, so let’s take a look at what’s going on.
Here are Five Fast Facts on the new banking proposal:
- 🤔 What’s The Deal? In response to the regional bank failures earlier this year, the Fed, the FDIC, and some other governmental folks have proposed new rules that would require banks to take more precautions against failures. In particular, smaller regional banks would get oversight similar to the bigger national banks. When you get a seat at the big boy table, you pay the big boy ante!
- 💡 The Rationale - The reason for this move is that regional banks have gotten bigger and bigger, and some of them are now big enough that they could pose a similar risk as the big banks if they fail. So, they need to be more cautious like the big banks to ensure failure doesn’t happen. With great power comes great responsibility!
- 💰 The Details - The eight key global banks (like JPMorgan, Bank of America, etc.) would have to hold another 19% of capital than they are now (remember how fractional reserve banking works). Banks with assets of $250 billion to $1 trillion would have to hold an additional 10%, and banks with assets of $100-250 billion would get a 5% increase. But…they would also have to use different calculations for risk and leverage, and that’s going to drive up costs, too.
- ⚠️ The Risks - Some say these new rules would cause big problems, causing the very things they are meant to protect against. In taking more safety precautions, banking costs would go up, and those would be passed along to customers. Another concern is that these new burdensome rules would cause smaller regional banks that are already struggling to merge, forming even more banks that are “too big to fail” and further reducing competition. Finally, some also think that these new rules (and their higher costs) will reduce the lending to low-income or first-time borrowers, driving them to non-banks that follow much looser practices (and have much higher risk). Oh, the irony…
- 📅 What’s Next - The proposal is already public, and now we’re in a period where banks and their reps can comment until November. After that, if these new rules are approved, the changes will be rolled out between July 2025 and July 2028. But don’t be surprised if banks get themselves moving in this direction well ahead of that.
🔥Bottom line: All of this haggling is happening in the corridors of power in the financial and political world, and we’re just observers. The problem is, the results of this stuff will have a real impact on the cost of banking, borrowing, and pretty much everything else about the nation’s economy, including our Paychecks.
What do you think about these new proposed rules?
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