Owning a home is often considered a fundamental element of the American dream, offering people the chance to build wealth and enjoy the stability of homeownership. It's seen as a pathway to financial security and progress. Yet, not everyone has experienced these advantages equally. Persistent disparities, especially across racial divides, have led to significant wealth discrepancies and decreased financial stability among minority communities.
Pennsylvania has the 15th largest minority homeownership gap in the country. While this is disconcerting to many, the NAACP is working hard to bridge the gap and use this as a benchmark to measure future success. But a recent proposal being considered by the Federal Reserve to increase capital requirement for banks could upend all of our work. While the proposal may appear prudent on the surface, it carries significant consequences, particularly for homeownership in America, and disproportionately affecting the African American community.
The rationale behind raising capital requirements is often framed as safeguarding against financial instability. However, the unintended consequences of such measures can be dire. When banks are forced to hold more capital in reserve, they are left with fewer funds to lend, leading to tighter credit conditions. As a result, we could expect borrowing to become more expensive, adding another hurdle to achieving homeownership for many.
In a letter sent to Federal Reserve Chairman Jerome Powell, the NAACP and the Urban League shared that an increase of capital requirements "will lead to reduced credit availability for all types of lending and undermine economic growth." That same letter outlined that if adopted, this proposal would devastatingly impact efforts to increase Black homeownership and put first-time homebuyers who don't benefit from multi-generational wealth at a disadvantage.
For African American families, who have historically faced discrimination in lending practices, the rule presents a formidable obstacle to homeownership. Already grappling with higher mortgage denial rates and lower homeownership rates, any additional hurdles in accessing credit only exacerbate these disparities.
Furthermore, increased capital requirements could stifle economic growth, hindering job creation and dampening consumer spending. As homeownership remains a primary driver of building generational wealth for many families, any impediment to this pathway undermines not only individual prosperity but also the broader economy.
I must also reiterate that while the purpose of such a rule is to protect our economy, an increase in capital requirements is just unnecessary. After the 2008 crisis, federal regulators implemented policies that have ensured the safety and stability of our banking system.
In the pursuit of a more just and prosperous society, we cannot afford to overlook the critical role of homeownership in achieving economic equity. By safeguarding access to credit and preserving opportunities for all Americans to realize the dream of homeownership, we can build a more resilient and inclusive economy for generations to come.
Given the unintended consequences we can expect if this rule is passed, it would be irresponsible for regulators to increase capital requirements on banks. I urge Senator Casey and Senator Fetterman to keep in mind the harm that this new rule could cause and voice opposition to such a proposal.
Gary Horton is the president of the Erie NAACP.
Local News
