She along with dozens of small-business owners from across the country roamed the halls of Capitol Hill on Nov. 14 to lobby against proposed new capital rules for banks that, they argued, would hurt their  access to loans. 

"There is going to be an impact," Marsden said in an interview. "That's the goal of why we're here today. If anything, at least they know what our concerns are." 

Largely seen as the brainchild of Federal Reserve Vice Chair for Supervision Michael Barr, federal regulators' so-called Basel III endgame proposal would raise capital requirements significantly for some banks — especially larger ones— and has been fiercely opposed by the industry. 

Marsden and the other business owners were convened in Washington by Goldman Sachs, through its policy advocacy organization 10,000 Small Business Voices. Normally focused on the reauthorization of Small Business Administration lending, the organization lately has taken an interest in Basel III. Along with the in-person showing, the group submitted a comment letter signed by 3,000 small-business executives that raised concerns about the plan's potential impact on credit availability. 

The banking industry's opposition campaign has centered on the impact on small-business owners and consumers, channeling logic used to support 2018 legislation by Sen. Mike Crapo, R-Idaho, to raise the thresholds at which banks became subject to tougher regulatory requirements, and to oppose the Dodd-Frank Act more than a decade ago. Changes to capital requirements for banks directly bleed into small-business or consumer borrowing rates, the argument goes, raising prices for everyone if federal regulators toughen the requirements or lowering prices if they relax them.

"When there are tighter restrictions, when financial institutions have to hold so much more capital because it's required by the Federal Reserve, there is going to be a lot more selectiveness in regard to what loans are going to be available, and so if there's less money out there available for us to pursue or to ask for," Marsden said. "When there's less money to go around, I think that's where the concerns are." 

Regulators insist that the ultimate cost of the new capital requirements to consumers would be negligible at best. Speaking on stage during an event Friday hosted by The Clearing House — a payment processor owned by the nation's largest banks — the Fed's Barr argued that the costs were well worth the added resilience they would bring to the banking system. 

"If there's no competition at all, and all of [the additional cost] is passed through to the borrower, the average increase would be 0.03%," he said. "So, it's a very, very small change in the cost of credit, and a significant increase in the resiliency of the banks."

But, based on views expressed by lawmakers during a pair of congressional hearings with bank regulators last week, it appears the industry's lobbying blitz is beginning to win over more legislators.

While Republicans have made their objections to the Basel III proposal clear for months, Democrats unexpectedly raised questions about the need for higher regulatory capital requirements and expressed concerns about reciprocal impacts on credit availability during the hearings.

"These rules don't affect any banks in Montana, but they do affect the big guys that affect Montana," said Sen. Jon Tester, D-Mont., in the Senate Banking Committee's hearing last Tuesday. "From a small-business standpoint, if this rule doesn't work, it's gonna raise hell with the economy of my state."

Skeptical Democrats included moderates such as Tester and Rep. Jim Himes, D-Conn., who supported Crapo's reform bill in 2018, as well as typical regulatory advocates such as Rep. Brad Sherman, D-Calif. The positions staked out by these lawmakers took some policy analysts by surprise.

"It feels unusual for Democrats to push back so strongly against proposals from one of their own. I can't tell if it's the fruit of bank lobbying, but I do think the Dems are spooked by Barr going too far and bridling the economy ahead of an election where Democrats are the incumbent," said Derek Tang, an economist and the CEO of Monetary Policy Analytics. 

Michael Zona, a managing director at Bullpen Strategy Group, which has helped organize the push against the Basel III rules on behalf of Goldman Sachs, including the small-business effort that Marsden was part of, said small-business owners have met with lawmakers such as Tester, as well as Sens. Gary Peters, D-Mich., and Jeanne Shaheen, D-N.H. All of those lawmakers are Democrats who have a history of trying to increase credit access for small businesses. 

The battle over the capital rules has even shifted into the public discussion, rather than being limited to Washington lawyer and lobbyist circles as bank capital rules usually are. The issue has been featured in ads during Sunday night football games, and groups such as the large-bank trade association Financial Services Forum and the lobbying group Center Forward, which advocates for self-described centrist policies, have launched ad campaigns aimed at mobilizing voters to contact their lawmakers on the issue. 

Barr said he has been surprised by the discourse around the proposals.

"Some of the advertisements and things you're seeing in public are extremely unusual for bank regulation," Barr said during the TCH event. "Normally, we issue a proposal, and then we get very detailed comment letters back, and we take those comment letters into account and we finalize our rule. That's sort of the normal process. Seeing ads in football games, that's kind of unusual."

The Bank Policy Institute, which has positioned itself as a leading voice on the Basel III discussion, has already spent $2.9 million on lobbying in 2023, according to lobbying disclosures compiled by Open Secrets. The group spent roughly $1.9 million in the first quarter alone, exceeding its lobbying expenses for all of 2022. Since then, spending has slowed, but remains high year over year.  The group doled out $420,000 during the third quarter. 

"The bank trades' campaign has been unprecedented, and clearly is making headway among both parties," said David Zaring, a professor of legal studies at the University of Pennsylvania's Wharton School of Business. "Moreover, although implementation will take a long time, I think stories about an inability to access credit ring particularly true in wake of the COVID shutdown and worry Democrats who think they might be blamed for economic bad news." 

Those looking to influence public opinion on the capital rules are aiming largely to use lawmakers' soft power, said Isaac Boltansky, managing director and director of policy research at BTIG, rather than looking for another legislative package similar to the 2018 tailoring rules that emerged from Crapo's legislation. 

"There is no reason whatsoever to believe that Congress will act on the bank capital regime, but there will be a persistent effort to add as many voices as possible to the chorus railing against the proposal," he said. 

Those voices are especially strong if they're bipartisan, as Democrat-appointed regulators are more likely to moderate their proposal should moderate Democrats get on board with Republican and bank objections to the rule. 

"Congress will not stop these regulations, but the industry hopes that the loud noises from lawmakers will lead to a softening at a minimum," Boltansky said.