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ICBA: Exempt Community Banks from Basel III Proposal

 

Oct 23 - The Independent Community Bankers of America has called on federal financial regulators to exempt community banks from proposed Basel III regulatory capital standards. In a comment letter to the agencies, ICBA wrote that it strongly believes that the Basel III standards should not apply to U.S. financial institutions with consolidated assets of $50 billion or less and that are not deemed to be systemically important financial institutions.

“Let us remember that community banks were not the cause of the financial crisis of 2008,” ICBA wrote in its comment letter. “Their simplified balance sheets, conservative lending practices, and common sense underwriting shielded their regulatory capital balances from the losses that heavily impacted the large, complex, internationally active and interconnected worldwide financial institutions. Furthermore, Basel III was conceived as a standard that would apply only to the largest, internationally active banks so that, for instance, a large European bank would be subject to the same capital standards as its large banking competitor in the United States. It was never intended to apply to a domestic community bank.”

In its comment letter, ICBA wrote that applying Basel III proposals to community banks would represent a very large shift in their definition of regulatory capital, minimum capital requirements and risk sensitivities of these institutions, which will inflict irreversible damage on these institutions and the communities they serve. The proposals would significantly erode community bank profitability and credit availability and drive community banks out of business, furthering industry consolidation.

ICBA noted that introducing the capital conservation buffer, new definitions for common equity Tier 1 regulatory capital, new risk weightings for assets such as residential mortgages and the timeline for adopting the new minimum capital levels present many expensive and unnecessary regulatory burdens for community banks. Absent a total exemption from the proposed rules, ICBA advocated several modifications to Basel III to simplify the rule and better align the proposed capital standards to the unique strengths and risks of community banking. Among its modifications, ICBA called for regulators to:

To read ICBA’s comment letter and for more information, visit www.icba.org/advocacy.

 

 


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