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Bernanke says higher capital requirements may make loans more costly

Ben Bernanke

Federal Reserve Chairman Ben Bernanke said on Monday that increased bank capital requirements may make loans more costly for financial institutions.

Though Dodd-Frank restricts the Federal Reserve’s ability to lend in times of financial emergencies, Bernanke argued that the central bank should be able to effectively play the role of “lender of last resort,” adding that “the most important thing is the stability of the system,” MarketNews International reports. “To that purpose we have to have higher capital.”

Bernanke also said that Basel III international capital standards not only increase the required capital but make for higher quality capital and raise risk weights so that banks are required to hold more capital against their assets.

Bernanke said that while “more capital is going to make bank financing more expensive” and “will probably feed through and make credit a little more expensive,” MarketNews International reports.

The central bank is phasing in the increased capital requirements to “give banks time to adjust” and “give the economy time to recover,” Bernanke said, as there would be higher costs for consumers.

The Dodd-Frank Act does prohibit the central bank from lending to particular firms, Bernanke said, but the Federal Reserve is still allowed to lend to certain classes of financial institutions and “the basic tool [of providing emergency lending] is still there,” MarketNews International reports.

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