Opinion By Jonathan Kinloch, Wayne County Commissioner (District 2)
The past few years have been an exceptionally difficult time for the American economy. Between the pandemic and inflation, small businesses have had to take drastic measures to keep their companies afloat.
While there is still hope that our economy will make a so-called ‘soft landing’ that avoids a recession, we are not out of the woods yet. Business owners are still struggling, and they need officials in Washington, D.C. to take steps that will help, not hurt, job creators.
Washington can start by scrapping a plan to increase capital requirements for banks. This misguided proposal would make accessing credit more difficult and more expensive for many business owners, and it would widen racial disparities that already exist when it comes to who can and cannot access capital.
Increasing capital requirements would constrict the lending environment for small businesses. To cover their increased capital needs, banks would have to adopt a more cautious approach, imposing stricter lending criteria, which in turn could reduce the availability of credit for local entrepreneurs.
The rule would have an especially concerning impact on Black business owners’ access to credit, with one study finding that Black business owners are already three times as likely as white business owners to have the profitability of their company hurt by a lack of access to capital. Instead of narrowing this gap, the proposal from the Federal Reserve would make it worse.
What is particularly frustrating about the Federal Reserve’s proposal is that it is completely unnecessary. It would hurt small business owners for no real reason at all.
Thanks to Dodd-Frank legislation passed following the 2008 financial crisis, as well as other emergency measures passed during the pandemic, banks already have the resiliency they need to weather economic storms.
Financial leaders have acknowledged the banks’ economic strength. Treasury Secretary Janet Yellen’s has stated that “the American banking system is really safe and well-capitalized.” Federal Reserve Chair Jay Powell has acknowledged that “capital and liquidity levels at our largest, most systemically important banks are at multi-decade highs.”
Comments like this make the Fed’s proposal all the more head scratching. Why increase capital requirements when experts agree the banks are stable, especially when the unintended consequences could spell serious trouble for small business owners?
The Federal Reserve proposal is a remedy for an illness that our banking system does not have. Before the rule is finalized, decision-makers in Washington need to stand up for America’s small business owners, particularly those in communities of color.
The last few years have shown that small businesses can withstand tremendous challenges. Now, with inflation on the run, it is critical that the Federal Reserve not put new obstacles in the way. Leaders in the White House and Congress, including Michigan’s two Senators, should support small business owners by saying ‘no’ to new capital requirements for banks.
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