The Independent Community Bankers of America (ICBA) reiterated its call for policymakers to exempt community banks from proposed Basel III regulatory capital standards. In a statement for the record for today's Senate Banking Committee hearing on the Basel III proposal, ICBA wrote that the standards should not apply to U.S. financial institutions with consolidated assets of $50 billion or less.
Applying Basel III and the standardized approach to banks beneath this threshold will lead to large-scale consolidation in an industry already overly concentrated, ICBA said in its statement. Without a vibrant community banking system, consumers will be left with fewer choices and communities and rural areas across the country will be deprived of the credit needed to sustain and grow local economies.
If policymakers do not exempt community banks from the Basel III guidelines, ICBA wrote, they should simplify the rule and better align the proposed capital standards to the unique strengths and activities of community banks. Among its modifications, ICBA called for regulators to:
- fully exempt banks under $50 billion in assets from the standardized approach for risk-weighted assets,
- reduce the proposed substantially higher risk weights for balloon mortgages and second mortgages to their current Basel I levels,
- exclude changes in unrealized gains and losses in investment portfolios (accumulated other comprehensive income) from the calculation of regulatory capital for banks under $50 billion in assets to avoid harmful and unnecessary volatility in capital adequacy,
- continue the current Tier 1 regulatory capital treatment of trust-preferred securities issued by bank holding companies with consolidated assets between $500 million and $15 billion to reflect congressional intent,
- exempt all thrift holding companies with assets of $500 million or less from Basel III and the standardized approach (just as bank holding companies are) or provide a policy rationale for why they are not exempt, and
- apply Basel III and the standardized approach to credit unions if the rules will apply to community banks.