Lowering Solvency Standards Will Push Banks Closer to Failure
WASHINGTON, D.C. – Federal banking regulators today proposed to reduce solvency standards for the nation’s banks, changing what they call “regulatory capital rules.” Bartlett Naylor, economist for Public Citizen, released the following statement:
“With private credit markets cratering, AI transforming the workforce, and Trump’s Iran war threatening the world economy, we need healthy, resilient, well capitalized banks. Lessons learned after millions lost their jobs, homes, and savings following the 2008 mega-bank crash must not be ignored. Restoring banks to solvency took trillions in taxpayer money and years in which the nation suffered through the Great Recession.
“Trump’s bank regulators propose to tear at the already tissue-thin layer of solvency levels at the nation’s banks. Cravenly, regulators claim that reducing these standards will free up funds for more lending; but that turns on the deceitful misuse of the term ‘capital.’ Banks don’t ‘hold’ capital. For banks, capital merely means difference between assets and liabilities and is better understood as a solvency measure. The larger the difference between the value of assets and the value of liabilities, the greater the cushion preventing a taxpayer bailout. Every dollar a bank loans comes from a mix of money the bank borrowed, such as from depositors, and from shareholders’ money.
“Lowering solvency standards won’t generate more loans; it will only send banks closer to failure.”