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ICYMI: Unintended Consequences of Higher Bank Capital Could Lessen U.S. Financial Stability

Former Federal Reserve governor warns Basel III Endgame would further shift activity to the shadow banking sector.

Washington, D.C. – The Basel III Endgame proposal to substantially raise capital requirements for the nation’s largest banks would accelerate the migration of bank activity to the less regulated, non-bank sector, former Federal Reserve Governor Randall Kroszner warned in an op-ed published in American Banker.

“Since the Global Financial Crisis, I and others have expressed significant concerns about migration of bank activity to the non-banks,” said Kroszner, currently the Norman R. Bobins Professor of Economics at the University of Chicago Booth School of Business. “As I describe in a recently published paper, I am concerned that a proposal from the U.S. banking regulatory agencies called the Basel III Endgame will accelerate this migration to non-banks that face less, if any, regulation and supervision.”

“The agencies provided only a very broad qualitative assessment of the proposal’s costs and benefits and did not provide thorough analyses supporting their conclusions that the benefits of the proposal outweigh its costs,” Kroszner continued. “[Regulators] should undertake a cost-benefit analysis of the proposed revisions. Otherwise, some groups could be disproportionately adversely affected, and investment and therefore economic growth could suffer.”

Read the full op-ed here. A fact sheet regarding Dr. Kroszner’s paper is available here.  

Go to smartbankcapital.com to learn more about the strength and resiliency of the nation’s largest banks and the costs of higher capital requirements.

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