As fall colors peaked in mid-to-late October and the deadline for comment on the Basel III proposals loomed, letters highly critical of the international capital accord piled up on regulators’ desks like autumn leaves. The commenters were many and varied, from trade groups to members of Congress, along with hundreds of individual community bankers.
“The banking industry strongly supports adequate, high-quality capital.
Unfortunately, the proposed regulations go beyond that and would instead make banks less safe and slow down economic growth,” read a 200-page joint letter from the American Bankers Association, the Financial Services Roundtable and the Securities Industry and Financial Markets Association.
“Perhaps most troubling for bank customers, Basel III would punish institutions that make mortgage and small-business lending a significant part of their operations,” the letter added.
The Independent Community Bankers of America told the regulators 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.
“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 ICBA comment letter read.
The CSBS asserted in a comment letter that it is imperative the agencies, before advancing the proposals, further consider and fully understand the potential impact these proposals will have on capital in banks and, more important, bank behavior in lending decisions. And one state regulator, Benjamin Lawsky, head of the New York State Department of Financial Services, said in a letter, “Based on our experience, simpler rules are more likely to be successfully implemented by banks themselves and more efficiently monitored by their regulators.”
Among Congressional critics weighing in were two members of the Senate Banking Committee, Mark R. Warner, D-Va., and Patrick J. Toomey, R-Pa., who pointed out to the regulators that raising capital for community banks in the best of times is challenging and nearly impossible in times of economic stress.
Two overriding messages came through in last month’s comment letters: The Basel III proposals would cause irreparable harm to community banks, and they are too complex to be implemented effectively.
FDIC Director Thomas M. Hoenig suggested the same at an ABA regulatory symposium in September. “Applying an international capital standard to a community bank is illogical, particularly when models have not supplanted examinations in these banks. It is time for international capital rules to be simple, understandable and enforceable.”
Signs are emerging that these messages may be getting through. Comptroller of the Currency Thomas Curry had this to say before a group of Florida bankers meeting in late October: “Carried too far, the costs of regulatory burden can outweigh the benefits of finer calibrations of risk and capital.”
The regulators’ extension of the comment deadline, giving rise to this fall’s new barrage of letters, was a small victory for community bankers and their trade groups. But the battle isn’t over. They will need to stay on high alert while the regulators assimilate all the comments and hopefully develop more acceptable capital rules under Basel III.
Bill Poquette is editor-in-chief of BankNews.
Copyright (c) November 2012 by BankNews Media