The Fed wants to put our own banking system under the aegis of international banking regulators. Not directly, but by requiring all American banks—including even our smallest institutions—to meet the capital requirements of Basel III. Basel III is an international standards “agreement” carrying international bureaucrats’ view of what constitutes a bank’s capital adequacy; those bureaucrats’ view of proper stress testing of a bank; and those bureaucrats’ view of the adequacy of a bank’s liquidity, apart from its capital adequacy.
There’s more: the Fed intends to impose on each bank a 1%-2.5% surcharge on its (increased) capital—because the Fed has a better understanding of how the bank’s capital should be used than does the bank.
Aside from whether US businesses should be under the control of foreign quasi-governmental agencies—a meme this administration is increasingly embracing—smaller financial institutions will have trouble meeting the additional requirements. This is apparent from the results, in market share and profit margin, of this sort of intervention. Lenders with $1 billion or less in assets have seen their market share fall to the neighborhood of 10% from the 31% they held in the early ’90s, and smaller banks had a return on assets of 1.22% for the first quarter of this year, compared with 1.52% for those with more than $1 billion in assets, just from the existence of the Fed’s domestic regulatory requirements. So much for too big to fail. The Fed is busily instituting too small to survive. (And as an aside, notice those profit margins. So much for fat cat bankers. Those are the margins of chain grocery stores.)
There’s yet more. The Fed doesn’t want banks to rate their riskiness in any effective way. It intends to force banks to stop relying on credit ratings when looking at their own assets’ riskiness. Instead, the risk classifications of another foreign entity, Organization for Economic Cooperation and Development, are to be used. The OECD Knows Better.