By: Michelle Patana
Community bankers are not sitting idle amid the implementation of Basel III rules, which call for new capital and liquidity standards. Instead, hundreds of community bankers nationwide submitted letters to lawmakers regarding the negative ramifications the legislation would have on local institutions and called for exemptions from the new rules.
The Basel III legislation would not only impose new capital standards, but also modify how capital standards are calculated. Further, the rules are expected to change how certain assets are risk-weighted, which may affect smaller banks' capital ratio, American Banker explains. The Independent Community Bankers Association began circulating a petition over the summer which has currently received 15,000 signatures opposing the rules from 4,200 community banks. ICBA released a comment letter earlier this week reiterating the risks that Basel III poses to local banks and calling for exemptions from the new rules.
"[Community banks'] simplified balance sheets, conservative lending practices, and common sense underwriting shielded their regulatory capital balances from the losses that heavily impacted the large, complex, internationally-active and interconnected worldwide financial institutions," ICBA wrote in its comment letter. "Furthermore, Basel III was conceived as a standard that would apply only to the largest, internationally active banks so that, for instance, a large European bank would be subject to the same capital standards as its large banking competitor in the United States. It was never intended to apply to a domestic community bank."
Local institutions write their own letters to lawmakers
While ICBA has been a vocal opponent of the Basel III rules, more community bankers are submitting individual letters to lawmakers to supplement ICBA's efforts and providing specific examples of how the rules would affect their community banking programs.
For example, James Smith who serves as chairman emeritus of Missouri-based community institution Hawthorn Bank, explained that if the rules are allowed to go through, his bank may be forced to sell its trust-preferred securities that are currently included in its core capital ratio, according to American Banker. As a result, this may inhibit the bank from extending financing to potential homebuyers, small businesses and college-bound students who may help spark the economy.
Despite fervent opposition and proposed changes to Basel III, lawmakers have yet to make any substantial changes to the existing legislation.