By Cari Alspaugh

Imagine if small businesses and entrepreneurs could operate in an environment where access to affordable credit was not constrained by outdated and overly burdensome regulations. Imagine a financial system where community banks had greater flexibility to lend, aspiring homeowners had more mortgage options, and local entrepreneurs could more easily secure the capital needed to hire workers, expand operations, and invest in their communities. That is why the new capital requirements proposal released by the Federal Reserve, OCC, and FDIC is such an important and welcome development.

As a Board Member of the California Local Business Connection, I applaud regulators for taking meaningful steps to simplify the capital framework, recalibrate risk measures, and remove provisions that have discouraged bank participation in critical lending markets. This proposal represents an important step toward restoring balance in our financial system and ensuring that banks can better serve the communities, families, and entrepreneurs that drive California’s economy.

For years, increasingly burdensome capital requirements have constrained the ability of banks to lend, forcing institutions to hold excessive amounts of capital in reserve instead of putting those resources to work through loans and investments. While strong safeguards are essential to maintaining financial stability, regulations must also recognize the real-world consequences that excessive restrictions can have on consumers and small businesses seeking access to affordable credit.

This proposal moves us in the right direction by helping maintain credit access for Californians across the economic spectrum. When banks are permitted greater flexibility to deploy capital, consumers benefit from more affordable auto loans, personal loans, and credit cards. Families facing unexpected expenses or major life purchases are less likely to encounter higher borrowing costs or outright denials. A healthier lending environment creates greater competition among lenders and expands opportunities for everyday Californians from Los Angeles to San Francisco to access the financial tools they need.

Small businesses stand to gain significantly as well. California entrepreneurs and local businesses rely heavily on traditional bank lending to manage operations, hire workers, purchase equipment, and grow their companies. By freeing up additional capital for lending, banks will be better positioned to extend credit at lower costs to startups, minority-owned businesses, and other entrepreneurs who often struggle to access larger capital markets. For many small businesses, access to financing is the difference between expansion and stagnation.

The proposal will also improve conditions for mortgage borrowers. Lower reserve obligations will allow banks to offer more competitive mortgage products, particularly benefiting first-time homebuyers and working families who are frequently squeezed out of the market during periods of tighter lending standards. At a time when it is increasingly difficult to buy a home in the Golden State, greater bank participation in mortgage lending will expand consumer choice and help restore competition to a market increasingly dominated by nonbank lenders such as Rocket Mortgage.

This proposal also helps improve America’s global competitiveness. U.S. banks already operate under some of the strictest capital requirements in the world, placing American consumers and businesses at a disadvantage through higher borrowing costs and reduced credit availability. Creating a more balanced framework will help create a more level playing field and reduce the regulatory costs that are too often passed directly onto borrowers. But while this proposal moves us in the right direction, American banks will still continue to carry some of the heaviest capital burdens among developed nations, leaving room for more to be done.

The members of the California Local Business Connection — including small businesses, entrepreneurs, and community leaders across our state — understand firsthand how critical access to affordable credit is for economic opportunity. We encourage policymakers, business leaders, and community advocates to support this proposal and continue working toward a regulatory framework that promotes both stability and growth for California and the nation.