By: Michelle Patana
It has been a big week for community banks, as it appears that many lawmakers are starting to understand the burden of new reforms on local institutions and lobby for their cause. Earlier in the week, Senate Majority Leader Harry Reid introduced a bill that would extend TAG insurance - which provides unlimited coverage for certain type of non-interest bearing deposits - for another two years. Now, the House of Representatives is encouraging lawmakers to exempt community banks from the highly contentious Basel III rules.
The legislation, which requires banks to hold more capital to reduce risk in the event of another crisis, may place an undue burden on local banks, a scenario that would be harmful to the economy. On Capitol Hill, House lawmakers argued the imposing these standards on smaller institutions that had no part in the poor banking strategies that led to the economic collapse may adversely impact consumers. Placing too heavy a financial burden on small banks may hinder consumers' ability to secure mortgages and loans, they argued.
The new rules will require that banks maintain a common equity level of 4.5 percent of their assets, weighted for the risk they pose, plus an additional 2.5 percent of a capital conservation buffer in common equity, according to Dow Jones Newswires.
Lawmakers speak out
Several prominent lawmakers voiced their support for exempting community banks from these rules and taking a more measured stance toward reforms.
"It is my hope that today's hearing will demonstrate to the regulatory agencies the importance of appropriately tailoring these requirements to the different-sized financial institutions," said Representative Shelley Moore Capito, a West Virginia Republican, according to Bloomberg.
Representative Carolyn Maloney, a New York Democrat, also urged regulatory agencies to focus their reforms on the larger institutions that contributed to the economic crisis, rather than the smaller players that are largely absent from culpability.
The U.S. was slated to finalize the Basel III rules by the end of the year, but the debates surrounding its provisions and implementation have prompted it to push off its deadline for implementing the final rules indefinitely. In the interim, lawmakers have pledged to review the terms of the reform and take feedback from banks and analysts into consideration.