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U.S. regulators are facing a series of difficult choices as they weigh how to finalize Basel III capital and liquidity rules next year, including how closely they adhere to an international agreement or whether they make changes for smaller institutions.
December 27 -
Regulators pledged Wednesday to heed concerns of community banks and ensure that a final rule implementing Basel III capital and liquidity requirements does not harm smaller institutions.
November 14 -
Small banks won a critical battle Friday as regulators agreed to indefinitely delay implementation of Basel III until various issues with a proposal can be resolved.
November 9
WASHINGTON — Senate Banking Committee Chairman Tim Johnson and Sen. Mike Crapo, the top panel Republican, wrote to regulators on Wednesday urging them to weigh concerns by community bankers on pending Basel III capital and liquidity rules.
In their letter to Federal Reserve Board Chairman Ben Bernanke, Comptroller of the Currency Thomas Curry, and Federal Deposit Insurance Corp. Chairman Martin Gruenberg, the two senators pressed regulators to "carefully tailor" their proposal to implement Basel III in the U.S. to specific types of institutions.
Community bankers and many members of Congress are demanding changes to how regulators initially proposed to implement the agreement, which is designed to improve the quality and quantity of capital that banks must hold.
"We are following up to make sure those concerns are not only being taken seriously, but are being proactively addressed. While it is important to get the new capital standards in place, it is more important to get the rules right," they wrote in a letter.
Regulators released three proposals in June. The first would establish minimum capital and liquidity requirements for all banks, large and small. The second plan, known as the standardized approach, would fundamentally change risk weightings on assets, which could have a significant impact on a bank's capital ratio. The third proposal, known as the advanced approach, would put into place additional requirements only for the largest banks, such as a leverage ratio and countercyclical buffer.
After receiving more than 2,500 comment letters — mostly from community bankers alarmed by the impact such rules could have on their businesses — the U.S. agencies said they would miss an international Jan. 1 deadline, instead postponing the final rule indefinitely.
At a Senate Banking hearing in November, regulators assured lawmakers that they would carefully review each letter and take concerns into consideration when drafting a final rule.
The issue is likely to come up again at a hearing Thursday in the Senate Banking Committee with principals from all of the banking agencies, including Curry and Gruenberg.
Bankers from smaller institutions have stressed the complexity of regulators' proposal, while also arguing the agencies needed to ease up on provisions establishing new risk-based capital requirements for residential mortgages and keep a filter that affects how much capital banks have to hold against certain instruments.
"We are concerned that the proposed treatment of accumulated other comprehensive income, or AOCI, may increase volatility and make interest rate risk more difficult for small banks to manage. In addition, we are also concerned that the proposed risk weights could have an adverse impact on small banks' ability to offer and service mortgages, especially in rural areas," the lawmakers wrote.
Johnson and Crapo asked regulators to respond on how the agencies plan to address concerns before finalizing the rules.
