At the Cato Institute, Norbert Michel detailed a recent electricity deregulatory action by New Hampshire that says, “Anyone who produces electricity in New Hampshire won’t be subject to public-utility regulation provided they don’t connect to the existing grid.” Michel explains that the banking industry could benefit from a similar deregulation method, and that the foundation for that reform already exists in the communit bank leverage ratio enacted in 2018. He writes:

The CBLR was designed to give “small” banks a way to simplify their capital requirements. The mechanics are as follows: Any bank with assets less than $10 billion can get an exemption from the general bank capital rules if it chooses to maintain a higher capital ratio. As of 2024, about 40 percent of the nation’s “small” banks took the deal.

So, let’s expand it. Just like the New Hampshire electric utility exemption, the expansion would give people a choice.

In this optional framework, anyone who maintains a higher capital ratio can open a bank wherever they like and be exempt from the existing regulations that dictate how banks can operate. They would still be prohibited from committing fraud—that’s not a banking regulation.

To make this work, the new banks would be explicitly prohibited from purchasing FDIC insurance or participating in any Federal Reserve or Federal Home Loan Bank lending programs. Existing banks could start affiliates to take advantage of the new opportunities.

If the existing federal system really is so great, nobody will take the new option and there’s nothing to worry about.

Let Bankers Run Their Banks

Maybe the take-up rate won’t be so high, but nothing about the existing regulatory system resembles anything a rational person would construct. If we can’t dismantle it piece by piece, then let’s give people an option to live under a different system.

Either way, federal officials need to come to grips with the fact that a free enterprise system is best, even in financial markets. The regulatory framework should let bankers be bankers, not force them to operate the way federal regulators want them to operate.

Let’s hope that the New Hampshire electricity revolution sparks something in financial markets.

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