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Bowing to pressure from community bankers, regulators extended the comment period on a set of proposals that will lift banks' minimum capital requirement to 7%.
August 8 -
A proposal by regulators to revamp the way banks must measure risk on certain assets is alarming many community bankers, who argue it will raise capital requirements, increase compliance costs and curb lending.
June 14 -
The Fed on Thursday issued proposals that would raise banks' minimum capital requirement to 7%.
June 7
WASHINGTON — Federal Reserve Board Chairman Ben Bernanke said Thursday community banks would be spared some of the tougher requirements laid out in the so-called Basel III accord.
"It's not a one-size fits all," said Bernanke on a set of proposed rules to implement Basel III in the U.S., speaking to reporters following a two-day Federal Open Market Committee meeting. "Indeed, many of the most difficult, complex regulations apply only to the largest and most complex institutions."
Bernanke said the current proposal by regulators to implement the accord would not unduly place requirements on community bankers that are intended for only the most complex internationally active banks.
"Most of the rules, particularly the most complex rules, will not apply to smaller banks," said Bernanke. "Indeed banks that are under $500 million have special exemptions from these rules."
The proposal released by U.S. regulators effectively adopts new international capital standards set by the Basel Committee on Banking Supervision, which are designed to prevent a repeat of the financial crisis.
To be sure, community bankers for the most part had expected the majority of the Basel III plan, which dictates the quality and quantity of capital that institutions must hold, to apply to them, including a core requirement that banks hold 7% in common Tier 1 capital.
But to their surprise, the proposal upped the ante for the roughly 7,000 smaller-sized institutions by changing the risk-weighting calculation for certain assets, including U.S. government securities, corporate exposures and residential mortgages. Community banks had expected to be allowed to stay with an earlier edition of the Basel accord, which was initially adopted in the late 1980s.
The Fed chairman said even though the proposal by regulators is meant to strengthen the capital held by smaller banks, many of those institutions would "already meet those capital requirements," he said.
Bernanke stressed Fed officials are very keen to hear the views of bankers from smaller-sized institutions.
"We're very interested and very focused on community banks at the Fed," said Bernanke. "We believe they play a very important role in our economy, in our communities."
Regulators mandated the changes in part because they wanted to update risk weights to make them more risk-sensitive. But they also had to comply with a provision of Dodd-Frank which required banks to remove any reliance on external credit ratings for capital requirements.
As a result, the agencies had to come up with a new way of calculating risk weights both for debt securities in an institution's trading book and for loans in the banking book.
Bernanke cited two Fed governors, Elizabeth Duke and Sarah Bloom Raskin, "who are particularly interested that the rules are not excessively onerous," he said.
Regulators, he added, are "trying to make sure that we take into account … community banks when we put out the final rule."
Last month, community bankers won a small, but critical victory gaining more time to voice growing concerns over a set of proposals that would enact Basel III capital and liquidity requirements for all institutions. The banking agencies said they will provide an additional 45 days of public comment on their June proposal with a new deadline of Oct. 22. Community banks are hoping the extra time will help amass support in Congress and elsewhere to try and soften the proposal and lessen its impact.
Since the proposal was released, concerns among institutions have risen to near a boiling point, with bankers expressing outrage to regulators during in-person meetings and conference calls.
Bankers argue that certain requirements in the proposal will pose a large challenge to smaller institutions in proving how they can meet the new standards, which will come at a great expense. The question that continually appears to crop up for bankers is whether regulators seriously weighed the impact of rules on smaller-sized institutions.
