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"The FDIC and the Fed are authorized to maintain the health and safety of the United States’ banks. Their job is to avoid 1930s-style bank runs that could do great damage to our financial system. Here’s the problem: These new rules would punish banks that are financially sound and shrink the available pool of loans available to homebuyers, small businesses, and lower-income families. Less lending to qualified borrowers would mean less economic growth and less financial stability.
A forthcoming Committee to Unleash Prosperity study co-authored by David Malpass, the former president of the World Bank, and myself finds several negative—unintended—consequences of these rules based on the best research findings:
First, they will reduce the available pool of capital by an estimated $100 billion to $150 billion a year.
Second, the reduction in lending will reduce economic activity and thus shrink annual GDP by as much as 0.6 percent.
Third, because foreign banks are not subject to these regulations, U.S. banks will lose competitiveness to foreign banks.
Fourth, and most importantly, it’s the little guy who gets squeezed out of the lending market. Small businesses and lower-income families are most likely to be the ones whose loans are rejected as a result of these new rules.
It’s simple: Lending is the oxygen supply that keeps our economy vibrant and competitive. Cutting it off, as the Basel rules are proposing, won’t make our economy safer but will put it at greater risk."