The spate of bank failures last spring clearly spooked federal regulators at the FDIC, the Federal Reserve, and bank depositors. Bad decision-making by Silicon Valley Bank, Signature Bank, and First Republic Bank led regulators to take emergency life-saving measures against the banks. Memories of the 2008 financial crisis.

But as the saying goes, crises are always scary to waste in Washington, so there is a knee-jerk reaction to call for more government intervention.it's not surprising senate democrats It took immediate action, asking federal regulators to add new regulations to the U.S. banking system, including increasing complex capital requirements. In quick response, the Federal Reserve, Office of the Comptroller of the Currency, and FDIC announced a joint proposal for the implementation of the so-called “Basel III regulatory framework” in the United States. These are complex rules, but in simple terms, these rules will increase the amount banks hold in reserves by 25%.

Sorry, but this won't stop hundreds of American banks from failing from time to time. It prevents loans from being given to small businesses, homebuyers, and consumers who need them.

The theory behind higher capital requirements is that banks will have more money on reserve to offset losses if a loan defaults. Bank reserve requirements are certainly a good safety measure. We don't want banks to take on too much risk and run into the taxpayer safety net every time they run into trouble. However, a number of reputable government and private studies have found that American banks as a group are not undercapitalized, and neither are the banks that fail.

These banks simply made a series of poor investment/lending decisions. Ironically, some of the bad decisions were a direct result of federal regulation, such as holding on to “safe” low-interest government bonds that lost market value when the Fed finally started raising interest rates. .

The FDIC and Federal Reserve System are authorized to keep America's banks healthy and safe. Their job is to avoid bank runs like those of the 1930s, which can cause major damage to our financial system. Here's the problem. These new rules will penalize financially healthy banks and reduce the pool of loans available to homebuyers, small businesses, and low-income households. Fewer loans to eligible borrowers means slower economic growth and less financial stability. (Related: Stephen Moore: Blue State Discomfort: Rich Policies Caused Meltdown in Democratic-controlled Areas)

The upcoming Unleashing Prosperity Commission study, which I co-author, builds on the best research findings to find some negative – unintended – consequences of these rules.

First, it will reduce the available capital pool by an estimated $100 billion to $150 billion annually.

Second, the decline in lending would reduce economic activity, shrinking GDP by 0.6% annually.

Third, foreign banks would not be subject to these regulations, making U.S. banks less competitive with foreign banks.

Fourth, and most importantly, it is the little people who are locked out of the lending market. SMall businesses and low-income households are most likely to be denied loans as a result of these new rules.

It's easy. Finance is the oxygen that keeps our economy vibrant and competitive. Cutting it off will not make the economy safer, as the Basel rules propose, but will expose it to greater risks.

Stephen Moore is a senior fellow at the Heritage Foundation and an economist at FreedomWorks. His latest book is “Govzilla: How the Relentless Growth of Government Is Embroidered Our Economy.”

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.

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