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Capital requirements for community banks should be raised outside of the Basel III process and through a much more simplified system of risk-weighted assets.
March 18 -
Ray Grace, the acting banking commissioner of North Carolina, used humor to deflect some tough questions aimed at regulators about limits on bank startups.
March 5
WASHINGTON — Members of the House Financial Services Committee raised concerns Wednesday about the current business environment for small banks, pressing regulators about the lack of bank charters in recent years and the effect of new rules on the industry.
Lawmakers from both sides of the political aisle cited the lack of ne dovo banks, asking Federal Deposit Insurance Corp. officials when the industry might start to see a turnaround.
"No new banks were charted in 2012, according to the FDIC. We've seen all the closures, we've talked about how important the fabric of lending is to small businesses and farmers … and all these institutions do for our constituents," said Rep. Shelley Moore Capito, the chairman of the financial institutions subcommittee, which conducted the hearing. "When you see everything closing and nothing opening, that to me is a red flag that we need to monitor."
Others raised similar worries, arguing that new rules could be dampening start-up activity.
"There are kind of two problems facing community banks. One is the squeeze on margins which has to do with monetary policy," said Rep. John Campbell, R-Calif. "On the other end, we have this other … increase in cost at the community bank level due to regulatory restrictions. So if you look at that you've got declining margins and increasing costs, we see this reflected in no new bank charters and in consolidations of community banks. So from where I sit, I look and I say, all right, we actually have a current regulatory environment that is damaging the very sector we're supposed to be protecting."
But officials from the FDIC and the agency's inspector general instead pointed to the cyclicality of the market, which continues to recover from the financial crisis. They also said they hoped to see renewed charter activity in the near future.
"We're starting to hear discussions from consulting groups that are representing those organizers that are interested in starting community institutions," said Doreen Eberley, director of the FDIC's division of risk management and supervision.
Lawmakers also continued to hammer regulators about the wave of new rules facing small banks, including the proposed Basel III requirements.
"Basel III would be the last nail in the coffin for our community banks," said Rep. Lynn Westmoreland, R-Ga.
Eberley declined to describe the agency's thinking as it reviews the more than 2,500 small bank comments on Basel III, but said that concerns generally fall into three categories: implications for mortgage lending, treatment of trust-preferred securities and the capital effects of appreciation and depreciation on securities.
Republicans and Democrats also questioned FDIC officials about the consistency and fairness of bank examinations and the agency's appeals process.
"The appeals process does not appear to us to be independent. The appeals process appears to be similar to being bullied in elementary school and your only appeal is to the bully's mother," said Rep. Patrick McHenry, R-N.C., quoting a banker.
New York Democrat Rep. Carolyn Maloney echoed those remarks, saying she and Capito are working to soon reintroduce legislation that would
"One of the areas was the appeals process, where they feel their appeals are not listened to — they are not taken into consideration," Maloney said. "Often I feel a disconnect when I talk to regulators whom I respect. They say 'we're there.' … Then I talk to community banks … and they were saying their appeals were not listened to, or that they were treated unfairly, and I feel this is an area where we have to work together to make it work better."
