Bowman outlines capital rule changes to boost small business lending

Federal Reserve Vice Chair Michelle Bowman underscored the vital role of small businesses in the US economy.

In 2023, these firms employed 59 million Americans, representing nearly half of all private-sector jobs, and contributed 44 percent of gross domestic product.

Bowman highlighted that new and high-growth small firms are key drivers of job creation and productivity.

Access to capital and credit is crucial for their success.

Community and smaller regional banks are primary financiers, holding approximately $600 billion in business loans under $1 million, with the smallest banks holding nearly one-third.

Large banks also provide significant credit.

Despite this, credit conditions remain tight; a Q3 2025 Kansas City Fed survey reported 9 percent of banks tightened standards for small firms, citing economic uncertainty.

Nevertheless, small businesses show optimism, with 44 percent expecting to increase investment and 42 percent planning to increase staffing.

The regulatory framework significantly impacts small business credit, with current rules risk-weighting these loans at 100 percent.

The Federal Reserve Board and other banking regulators have proposed modernizing capital rules to better align requirements with risk.

Specifically, the Basel III proposal outlines three key adjustments for small business loans: risk weights would decrease for investment-grade loans over $1 million (from 100% to 65%) and for loans under $1 million (from 100% to 75%).

Small business credit cards would also receive capital treatment more aligned with their actual risk, based on repayment history.

These proposals are open for public comment, with stakeholder input actively sought.