Basel III Endgame…ever heard of it? Sounds ominous, right?
Regardless of whether you’re familiar with the term, you’ve most likely felt the brunt of it in the last several months if you’ve tried to obtain a business loan from your bank.
What is Basel III Endgame?
In the last year, the Federal Reserve has raised interest rates to an all-time high, which is the first barrier to usage for small business growth. Most recently, further regulatory measures have provided a literal choke hold on the small business market for the foreseeable future.
In plain terms, Basel III Endgame, established by the Basel commission, is a list of international banking requirements that are intended to uphold and secure stability in the international financial system.
In the wake of bank failures in California, lawmakers felt it appropriate to put together measures that would mitigate the risk to banks by regulating their ability to lend. They did this by implementing standards that require a balance for the bank that supersedes their exposure to risk.
What’s the risk? Lending to businesses that the bank deems as less reliable to pay back what they have borrowed. The risk is higher with a fast-growing small business. (Seems counterintuitive, right?) So, who does this negatively affect most often? Small businesses.
The Impacts of Basel III Endgame
What was intended as a safeguard against losses to the bank mandates the bank carry a higher balance than previously required in order to absorb losses, thus causing a ground swell of challenges for the small business market. Now more than ever in history, the entrepreneurs that rely on affordable access to capital to grow their business are less likely to find it in the traditional banking environment.
It was already hard enough for early stage, growing, small businesses to access affordable and flexible capital. Now, the imposition of these measures has had a catastrophic effect on the portion of the market that has the greatest impact on our employment rate as a nation and the overall success of our economy. So much so that large communities of small business owners are petitioning the Basel committee to reduce the requirements to counterbalance the effects trickling down to the consumers.
When the remedy causes equal or more negative impact than the problem, is it a good idea? It’s like scraping your knee and deciding rather than putting a Band-Aid on it you should just amputate. Over exaggerated or accurate?
Small businesses are the cornerstone of our country’s economic foundation, and they deserve to have reasonable and affordable access to funding. The consequence of starting a business is always an uphill battle. Is it necessary to build a wall around our lending institutions that is so high it keeps out those who can benefit most and, in turn, sustain the stability of our entire country’s economic wellbeing?
Good news is, while the banks’ hands are tied, there are other options. Your newest homework assignment will be getting educated on the alternatives to the bank and how they can be the life raft to a sinking ship.
Keep following us as all of this unfolds, and join us for some upcoming educational sessions to shed light on how to navigate your growth journey with or without your bank.