In a recent government meeting, concerns were raised regarding proposed changes to broker deposit rules and their potential impact on community banks and local economies. Participants highlighted that stricter regulations could limit community banks' access to broker deposits, which are crucial for managing liquidity and lending capabilities. Mr. Gould expressed apprehension that these changes might decrease the safety and soundness of banks, acting in a pro-cyclical manner contrary to the intended counter-cyclical nature of bank regulations.

Mr. Benston elaborated on the implications of the broker deposit proposal, criticizing its lack of quantitative analysis and warning that it could increase costs for retail investors. He noted that approximately 70% of cash in retail sweep accounts is transferred between investments, and the proposed changes could disrupt this flow, raising costs for both non-affiliated and bank-affiliated broker dealers.

The discussion also touched on the Basel 3 endgame proposal, which would require banks to hold capital against fee and commission income as a measure of operational risk. This requirement could lead to higher costs for businesses, particularly manufacturers needing bank letters of credit for international shipments. Mr. Benston acknowledged the potential for higher capital requirements to affect liquidity in capital markets, emphasizing the need for careful consideration of the proposal's impact on local economies and businesses.

The meeting underscored the tension between regulatory measures and economic competitiveness, with participants urging for thorough analysis before implementing significant changes that could hinder growth and accessibility for community banks and their clients.