The Bill That Will Make Bank Failures More Likely
A GOP-led House bill would lower regulatory barriers, including minimum capital requirements, for new and some existing community banks. A loophole in the legislation could help banking giants circumvent regulations meant to prevent bank failure.
Through its PAC, the American Bankers’ Association gave $10,000 to Rep. Andy Barr (R-KY), the lead sponsor of a bill to loosen banking regulations, last election cycle. (Drew Angerer / Getty Images)
A Republican-led bill in the House of Representatives could fast-track the next financial crisis by lowering regulatory barriers, including minimum capital requirements, for new and some existing community banks. The financial-industry-backed legislation will make it easier for banks to form with fewer assets, even though new banks typically fail at higher rates than more established financial institutions.
While ostensibly intended to help increase banking access in rural areas, a loophole in the bill could also help banking giants circumvent financial-crisis-mitigating regulations.
Along with limiting regulatory reviews of the business plans for new banks, the Promoting New Bank Formation Act would triple the time frame for “de novo” banks to meet capital requirements from roughly one to three years. Capital requirements protect depositors and mitigate the risk of bank failures by mandating that institutions hold a minimum amount of funds relative to their risk-weighted assets.
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