Federal Reserve Board Vice Chair Bowman highlights capital proposals to lower risk weights on small business lending

The Federal Reserve Board published a speech by Vice Chair for Supervision Michelle W. Bowman setting out how recently proposed capital rule changes by US federal banking regulators are intended to support the availability of credit to small businesses amid tight lending conditions. Bowman pointed to banking system data showing banks hold roughly USD 600 billion in business loans originated under USD 1 million, with banks under USD 10 billion in assets holding nearly one-third of these loans. She cited survey evidence that credit remains tight, with 9 percent of banks on net reporting tightened credit standards in the third quarter of 2025 for commercial and industrial loans to small firms, and 83 percent of those tightening citing economic uncertainty. On regulation, she highlighted proposed changes to the standardized approach that would reduce the corporate risk weight from 100 percent to 95 percent, and a Basel III proposal that would generally reduce risk weights for small business loans over USD 1 million from 100 percent to 65 percent when the bank considers the borrower investment grade, and for small business loans under USD 1 million from 100 percent to 75 percent. The Basel III proposal would also revise capital treatment for small business credit cards to better align with observed risk, relying more heavily on repayment history, and seeks comment on the treatment of unused credit lines. The proposals are in an open comment period, and Bowman encouraged stakeholders to provide feedback on the small business-related changes and their potential effects on lending practices.