There are 4,136 banks in the US
Under the Fed’s proposals to adopt the so-called Basel III Endgame, only 14 more US lenders will become subject to the stiffest rules, bringing the total in the top tier to just 23.
All of this top tier will face steeper capital requirements than they do today – with the biggest increases hitting the biggest institutions, like JPMorgan Chase & Co and Goldman Sachs Group Inc.
But the remaining 4,000-plus banks won’t be affected and their role in the economy has grown, especially in real estate lending, since the 2008 financial crisis.
Small domestic banks have overtaken large banks in real estate lending in dollar terms, mostly driven by a huge increase in commercial property lending
Lack of diversification makes small banks more vulnerable, but that is meant to be OK: Small banks should be able to crash without hurting the wider economy or causing a crisis.
The question is whether the $100 billion asset threshold is small enough: Regulators and Congress thought $250 billion was small enough until Silicon Valley Bank.
Lots of small banks in the same area might all be making similar loans and could collectively become a major problem – that is one lesson to take from the Texas banking crisis of the 1980s, for example.
Paul J. Davies Bloomberg 9 October 2023
Hidden leverage is hard to quantify, obviously,
but it has certainly grown among shadow banks during the long years of ultra-low yields.
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