Why big banks—and odd allies—oppose a plan to protect banks

Source: Emily Flitter, N.Y.Times (Paid Registration)

Regulators are calling for an increase in the amount of capital — cash-like assets — that banks have to hold to tide them over in an emergency to avoid needing a taxpayer-funded bailout.

Banks have long complained that holding too much capital forces them to be less competitive and restrict lending, which could hurt economic growth. What’s interesting about the latest proposal is that groups that don’t traditionally align themselves with banks are joining in the criticism.

The National Community Reinvestment Coalition, which pushes banks to do more business in largely Black and Hispanic neighborhoods where banks often have scant presence, warned that parts of the proposal’s “overly aggressive capital requirements are likely to make mortgages significantly more expensive for the lower-wealth populations.”

But not everyone agrees. Americans for Financial Reform, a progressive policy group, argues that research shows that banks lent more — not less — when they had more capital in reserve.

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