Proposed changes to increase capital requirements for banks could make it even harder for CFOs across industries to get financing, according to Robert Goldsmith, president and founder of Northern Edge Advisors — a boutique investment bank which also provides financial advisory services. 

On Monday the Federal Reserve’s vice chair for supervision, Michael Barr, laid out a long-awaited list of potential changes to banks’ capital requirements under which banks with assets of $100 billion or more would have to account for unrealized losses and gains in available-for-sale securities when calculating regulatory capital, CFO Dive sister publication Banking Dive reported.

The proposal comes even as CFOs are already grappling with tightening credit standards in the wake of the failure of Silicon Valley Bank and other regional banks in March.

“Irrespective of the merits, and the systemic risk that CFOs are trying to deal with given the bank failures we had earlier in the year, it is going to make it harder for consumers and businesses to get loans,” Goldsmith said in an interview. “In this environment, we are already dealing with inflation, and it's more difficult to pass through those costs to consumers. I would define it as sort of a drag on businesses, and also more of a drag on the economy.”

These capital requirement changes may make things a little more unpredictable than they already are for finance chiefs, he said.

“It’s unclear how banks are going to respond to their needs, meaning, there's been more restrictions and less availability of bank loans and it will make banks less nimble,” said Goldsmith. 

An outside perspective

When it comes to how finance heads can prepare their businesses and make sure they are financially sound for when these changes come around, Goldsmith said having a good understanding of your company’s financial health is key, and something outside advisors can help provide.

“Businesses tend to become quite insular,” said Goldsmith, and the issue there is that trying to solve your own problems may not lead to a solution at all. 

“There is a natural hesitancy to subject yourself to criticism or advice, but very often you can learn more about the value of the business by talking to business advisors and gain a different perspective than you have internally,” he said. 

Additionally, these requirements will create further risk in an environment where interest rates are already high, according to Goldsmith. All businesses need to be hyper-aware on how these changes could affect them, and the goal is to be prepared for it, according to Goldsmith.

The value in hiring an external advisory service is that CFOs can gain an edge on the perspective of their business, or a bird’s eye view into how their business is suited for the future. 

This is particularly important at a time when bank capital requirements are changing, Goldsmith explained. “If you going for a bank loan, or you need credit through the private debt market, or you're trying to sell your business, you are going to be subjected to that scrutiny. So, why not get those indicators now instead of later,” he said.