How Will Bank Lending Be Affected By New Banking Standards?

[Corey Dutton]

Although people will strongly argue that banks should have higher standards imposed for liquidity and leverage, opponents of the Basel III have said that it will put many of the smaller, local banks in the U.S.A. out of business. Given its name from Basel, Switzerland, the Basel Committee on Banking Supervision, is the International oversight body for banks. A newly passed regulation called the Basel III, will certainly not induce U.S. banks to loosen up lending in the next several years, given that they must comply with much higher liquidity and leverage standards by as soon as 2015.

Although the Basel III standards have been softened somewhat this month, I believe that lending in the U.S. will continue to remain tight over the next several years. As banks make efforts to comply with Basel III by 2015, they will be looking to deleverage their balance sheets, and will not be eager renew current loans to their commercial borrowers. And in issuing new debt in coming years, banks will likely cherry-pick which loans they do, only selecting the best loans.

But what should borrowers do in response to this potential threat to bank lending? Get a head start on your real estate financing needs for 2013 and be prepared to find multiple options for financing, including private money loans.