In other words, if we were to see signs that banks’ capital ratios were in danger of eroding, we would certainly want to do something, but it is hard for me to imagine that the something should involve monetary policy – the obvious first line of defense in this case would be to turn to our regulatory and supervisory tools.
As many commenters noted in response to the ANPR, a uniform ratio that does not adjust with the local business cycle could provide too little incentive to make good loans during an expansion and incentives to make unsound loans during a downturn, which could be inconsistent with the safe and sound practices mandated by the CRA statute.